Hostility Remains after Hewlett-Packard, Compaq Merger Votes
Mar 26, 2002 (Houston Chronicle - Knight Ridder/Tribune Business News via
COMTEX) -- Combining Hewlett-Packard Co. with Compaq Computer Corp. would have
been a Herculean task even if all had gone smoothly.
But with the deal passing by the narrowest of margins, and many HP employees
opposed to it, the effort is expected to be even more difficult.
The HP shareholder meeting in Cupertino, Calif., last week, has been dubbed the
"Flint Center Fracas," for the rowdy crowd and the auditorium in which it was
held. Carly Fiorina, HP's chief executive, faced an often hostile crowd that
booed her on more than one occasion, even before declaring victory with only a
preliminary vote estimate to go on.
Many of those booing were HP employees. She now has the task of persuading those
employees to get behind the deal. Adding to the friction between HP management
and the rank and file is the knowledge that once the deal closes, some 15,000
workers will lose their jobs.
Still, the majority of HP workers will be keeping their jobs and those who do
will likely come around to support Fiorina as she begins to combine the
companies, said Mark Specker, analyst with Soundview Technologies Group.
"It is not clear to me that she is not going to have their support," Specker
said. "The reason Carly got up after the meeting and said they won was not to
change the outcome of the vote. She has to get this thing started. People have
to make life decisions. There is a lot of anxiety over there now."
Fiorina also faces the task of melding a culture with a history that dates to
the 1930s with one that was created just 20 years ago. Compaq employees have
already expressed fears that their culture will be quickly erased and replaced
with "the HP Way."
HP is viewed as engineering-oriented and Compaq as sales-oriented. Many HP
employees mistrusted Fiorina long before the Compaq deal was announced, in part
because she has made promises they believe she has not kept, and because she
comes from a marketing background.
"I've never met an engineer who could trust a marketing person any farther then
they could thrown them," said Mary-fran Johnson, editor of Computereworld, a
weekly magazine on the technology industry.
The resulting culture following the integration will likely reflect the
successful aspects of both companies.
"I think the HP executive culture is going to be the dominant one among upper
management," said Richard Doherty, reserarch director for the Envisioneering
Group. "Compaq has assembled a very good team of middle management in their PC
and server business, so there is no need to change that."
The companies have more than 900 people working on the integration team prepared
to begin the job of combining the two companies once the merger vote is
certified, which is expected to take weeks.
But no matter how many people the companies throw at the thorny issue of
integration, the track record for large technology mergers is not good.
"It's going to be difficult, and unfortunately, history shows us that most of
these mergers don't work, even with a broader tide of acceptance than there is
this time," Doherty said.
The integration team has been dubbed "cultural astronauts," because the tasks
they face is considered so ground breaking. Focus groups of employees have been
conducted to explore cultural differences as well as their similarities.
Walter Hewlett, an HP director and son of co-founder Bill Hewlett, led the
opposition to the merger and has yet to concede defeat. He believes the margin
for HP is between 0.5 percent and 2 percent of HP's shares.
Hewlett said Monday he will support the merger as a director and shareholder if
the final vote shows HP shareholders approved the deal.
If the merger is approved, the two companies will begin the daunting work of
integrating a company with hundreds of products, 150,000 employees and more than
$78 billion in revenues.
The new company, which will retain the HP name, expects to divide into four
units: imaging and printing; computers; services; and servers, software and
storage.
Hewlett's main gripe with the deal was that HP shareholders' stake in the
company's lucrative imaging and processing business would be diluted and their
exposure to low-end personal computers will be increased.
The integration effort is expected to take from two to four years and many
analysts have warned that the new HP will likely lose market share to rivals,
such as IBM, as it goes through the logistics of combining.
"An integration of this size is clearly a significant challenge and is
unparalleled in the technology world," said David Bailey, an analyst with Gerard
Klauer Mattison. "Because of the great deal of overlap of the product line, it
will be even more difficult than if HP had acquired a services company."
The companies have a product "roadmap" plotted for the next three years, but
executing the plan could prove to be one of the biggest hurdles the new company
faces.
"As far as the product plans being complete, the devil is in the details. We'll
have to wait and see which products are going to remain and what are the plans
to phase out old products. Compaq ran into these issues with Digital."
From the Compaq perspective, the new company will likely concentrate much of its
efforts on high-end servers and storage products; the company is No. 1 over Dell
in worldwide server market share.
Many analysts are refusing to speculate on the integration, saying it is still
too soon to call the vote for either side. A report surfaced Monday that
Deutsche Asset Management, a large HP shareholder, switched its vote from
against the deal to supporting it after its investment banking partner company
closed a deal to extend HP a $4 billion line of credit just days before the
vote.
"We're taking a wait-and-see approach," said Tom Burnett with Merger Insight, an
arm of Wall Street Access. "Right now the market is telling us that it does not
believe this is a done deal."
Both companies' shares have been steadily declining since the HP shareholder
vote last week. Compaq shares closed Monday at $10.63, down 2 cents per share.
HP closed at $18.12 per share, down 3 cents per share.
By Michael Davis
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