Merrill Lynch defends HP-Compaq merger
December 17, 2001 5:10 pm
SAN FRANCISCO, Dec 17 (Reuters) - Investment bank Merrill Lynch defended Hewlett-Packard Co's<HWP> proposed merger with Compaq Computer Corp.<CPQ> in a note on Monday which echoed much of Wall Street's skepticism even as it endorsed the plan.
"We have come ïúúA½µÿpaq deal, not because we think it will be highly successful, but because the alternative of the vendors remaining independent is even worse," strategist Steve Milunovich wrote in a note released on Monday, which was the brokerage's strong???d the company, left the brokerage two weeks ago.
Kraemer had written immediately after the merger was announced in September that it could be tough to integrate the companies but said the merger was supported by strategic and cost considerations.
In a longer report on the technology sector issued on Nov. 2, Milunovich had called the deal essentially defensive but still the right decision.
Merrill is in the process of searching for an analyst to take over coverage of HP, the brokerage said.
Many investors want HP to drop its plans, an argument made by Harvard Business School Professor David Yoffie and research associate Mary Kwak in a Wall Street Journal opinion piece on Monday. They suggested HP go back to its roots by decentralizing operations to promote innovation.
In contrast, HP Chief Executive Carly Fiorina has been centralizing operations, aiming to improve efficiency by consolidating divisions.
But Merrill's Milunovich defended HP's strategy of centralization in his note on Monday, saying it was still the best way to allocate resources, and that the combined company could win influence as a vendor taking "PC economics" to the enterprise, or high end-computing platforms.
"HP and Compaq have significant overlap. Some consider that a negative for acquisitions, but we don't, especially in a maturing industry ripe for consolidation," Milunovich wrote. He argued that the merger could be successful despite the failure of previous combinations of technology vendors.
Nevertheless, Milunovich put the deal's chances of going through at around 25 percent, reflecting the uncertainty since Hewlett and Packard heirs have unanimously opposed the deal, uniting about 18 percent of HP stock against the acquisition of Compaq. |
