A tax proposal by President Donald Trump could prove to be dangerous for Hewlett Packard Enterprise (HPE) and hundreds of other companies whose business relies on importing, said Tim Stonesifer, the IT company's CFO, at Morgan Stanley's TMT Conference on Tuesday.
The proposal that Stonesifer referred to is the border adjustment tax, backed by Trump and the Republicans in the House of Representatives, which would tax products that are imported and subsidize products that are exported. The goal of the policy is to incentivize U.S. production, aid U.S. exports and help fund other tax reductions.
If Trump follows through on his plans for such a tax, numerous U.S. companies would have to do a comprehensive review of their supply chains and modify them to align with the border adjustment tax, Stonesifer added.
"I'm not sure it would be passed how it sits today," he explained. "They'd have to work on the timing. How do you base this thing in, give companies enough time to make supply chain adjustments."
One way that the Trump administration could minimize the burden of a potential border adjustment tax would be to increase the tax deduction companies can claim for bringing jobs back to the U.S., Stonesifer noted.
Trump's other tax policies might not be as bad for HPE, however. Stonesifer said HPE could benefit from a reduction in the corporate tax rate from 35% to 25%, as well as a potential one-time tax holiday.
The "vast majority" of HPE's cash is held in offshore reserves, so a repatriation policy would enable the company to bring it back, Stonesifer added.
"That wouldn't change our capital allocation strategy or approach around M&A, but it would benefit it. No doubt about it," he said.
Stonesifer also touched on HPE's M&A outlook for 2017, noting that it's something that the company is thinking about, but isn't necessarily a top priority.
HPE is estimated to have upward of $9 billion in operating net cash, as a result of recent spinoffs, which could serve as fodder for potential M&A activity this year or in the near term. Last May, HPE said it would spin off its enterprise services unit and merge it with Computer Sciences (CSC) for $8.5 billion. And last September, the company said it would spin off its software operations and sell the unit to Micro Focus International for $8.8 billion.
When asked what deal sizes HPE might consider, Stonesifer said he "wouldn't give a dollar size" but said the company is interested in deals akin to its $2.7 billion purchase of Aruba Networks in 2015, or its $275 million acquisition of software maker SGI last August.
"Those are the types of acquisitions we've done in the past that have worked well for us," Stonesifer said.
Additionally, HPE last month bought data management platform SimpliVity for $650 million.