Really?? Heck of a scare tactic.
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Hewlett: Merger a loser at any price
Says Compaq merger to put profit 28% below target
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 6:10 PM ET March 12, 2002
PALO ALTO, Calif. (CBS.MW) Hewlett-Packard shouldn't attempt to buy Houston-based Compaq Computer at any price, merger opponent Walter Hewlett said Tuesday, citing the likelihood for lower profit caused by the deal's integration risks.
Shareholders of H-P are over-paying for what Compaq is really worth, Hewlett reiterated in a conference call. He said the proposed merger has cut "billions and billions" from the value of H-P, and that if the combination is approved, the stock will lose even more.
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"The integration risk is huge," Hewlett said. "The risk of taking on Dell head-on, a company which is executing well ... is extremely high. I would not advocate doing this deal at any price."
H-P's board would never allow the 0.6235-share exchange ratio if the deal were to be recalculated today, Hewlett added.
Hewlett said management at H-P and Compaq assumed the "perfect merger" when they made earnings assumptions for the combined company. If the merger is approved by shareholders in a vote on March 19, Hewlett assumes the company will earn $1.08 a share in 2003. H-P's management assumes the combined company will earn about 28 percent more, or $1.51 a share.
He said that his plan, which emphasized the company's profit-rich imaging and printing business, would result in substantially higher earnings of $1.53 a share. As a result, H-P could be a $36 stock by the end of 2003, Hewlett said, while he says the stock would be at 20 a share under the merger plan.
H-P and Compaq cannot succeed with a merger strategy to "out-Dell" Dell Computer in the personal computer business, and to "out-IBM" the services strategy of Big Blue.
"Make no mistake - that is what the merger will require," Hewlett told analysts and reporters.
In particular, Hewlett said the combined H-P will not have the cost advantage or the direct sales channels to keep prices low and steal market share from industry leader Dell.
"We add no value to low-cost commodity computing," Hewlett said. H-P should not chase profitless revenue." ... "This is a terrible business, where the profits go to Intel, Microsoft and Dell."
Adding H-P and Compaq's personal computer businesses together won't necessarily be more profitable due to its size, Hewlett said. If that were the case, he said Compaq, which has a larger PC business than H-P, would be the more profitable of the two companies
Hewlett also warned that the merger could result in a battle for power at the combined company. In other mergers, he said the power struggle is subtle at first, but eventually becomes more blatant.
He said there is no reason to think it will be different at the merged H-P/Compaq.
"Who will win -- Texas or Silicon Valley?" Hewlett asked.
Shares of H-P (HWP: news, chart, profile) lost 42 cents to close at $20.56, while Compaq (CPQ: news, chart, profile) shares lost 15 cents to close at $11.12.
Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com. |
