HP-Compaq Merge War Heats Up
Feb 11, 2002 (The Boston Globe - Knight Ridder/Tribune Business News via
COMTEX) -- The war over Hewlett-Packard Co.'s proposed merger with Compaq
Computer Corp. took on a new ferocity last week, as the two companies scheduled
shareholder votes next month on the $24 billion deal, and HP chief Carly Fiorina
traded high-profile potshots with dissident HP board member Walter Hewlett.
The intensity of the fight underscores an emerging consensus that the deal, once
given up for dead by financial pundits, is still very much alive. "People were
betting that they wouldn't even bother taking it to a shareholder vote a few
months ago," said Linda Varoli, analyst with Merger Insight in New York.
"They've definitely made some progress. Whether they've made enough is still an
open question."
The deal seemed to be mortally wounded last year when Walter Hewlett, son of the
company's cofounder, reversed his previous support for the merger. The other
founding family, the Packards, soon followed suit. First, David Packard said
he'd vote his 1.3 percent of HP stock in opposition to the merger. Then
Packard's sister, head of a Packard family foundation which holds 10 percent of
HP stock, also decided to oppose the merger.
The Hewletts and Packards haven't changed their minds, insisting that HP's
leadership in the high-margin computer printer business will be diluted by
merging with Compaq's line of low-margin personal computers. "We just think
that, strategically, the company is fine the way it is," said George Vera, chief
financial officer of the Packard Foundation.
"It's our view that HP is a strong company, that it's not in crisis," said Todd
Glass, spokesman for Walter Hewlett. "This transaction would more than double
HP's exposure to the PC business. That, in Mr. Hewlett's view, would be a
crisis."
But defenders of the deal are finding their voices. Peter Mercury, general
manager of Compaq's global services business, said the merger would make his
company a major player in computer services, as well as printers, scanners and
high-end business computers running Microsoft Corp.'s Windows software and the
advanced Unix operating system. "If you are HP, do you believe you're better off
going it alone... or better off expanding your portfolio capabilities?" Mercury
asked rhetorically.
Meanwhile, Fiorina has adopted a high-profile campaign to win over shareholders,
including full-page newspaper ads and speeches to financial analyst groups.
She's also delivered good news about the company's financial health; last week
HP announced it was raising its fiscal targets for the first quarter of the
year. The company had previously predicted that sales for the quarter would be
lower than for the fourth quarter of 2001, but it now expects an increase.
Moreover, HP expects to beat the consensus profit estimate of 16 cents a share
for the quarter.
In addition, the deal overcame a major legal hurdle in late January, when
antitrust authorities for the European Union gave their approval to the merger.
HP shareholders will vote on the deal March 19, while Compaq investors will vote
the next day.
By Hiawatha Bray
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(c) 2002, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.
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