From Information Week.
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HP, Compaq Plan To Be The Exception In Merger March 4, 2002
By Tischelle George
With a shareholder vote on the proposed Hewlett-Packard and Compaq merger scheduled to begin March 19, HP CEO Carly Fiorina and other company execs met with securities analysts last week to emphasize the benefits of the deal, reassure IT buyers that important product lines wouldn't be immediately discontinued, and explain how technology is helping prepare for the challenge of bringing the two companies together.
Opponents of the deal note that, historically, large mergers in the computing industry rarely work. HP and Compaq executives know this, so they've dedicated 600 employees to making sure this one is the exception to the rule. The group is analyzing possible pitfalls to map out an integration plan. The team is using Web-based collaboration software from eRoom Technology Inc. to record and store data about the integration on topics ranging from corporate branding to enterprise systems, says Webb McKinney, the HP executive overseeing the integration team.
Still, the merger remains a giant risk, says Toni Sacconaghi Jr., a senior research analyst with Sanford C. Bernstein & Co. "Big mergers don't always go according to plan," no matter how well the companies plan them out, he says.
Getting HP's employees excited about the merger is critical to the success of the potential deal, McKinney says. HP executives regularly survey employees to understand their concerns about the merger. About two-thirds of HP's 86,000 employees favor the deal, McKinney says. Uncertainty about their jobs and the time frame HP will use to notify workers about terminations are the most prevalent concerns, McKinney says. HP has determined it would eliminate 15,000 positions after the merger.
HP admits there will be short-term negatives. It expects to save $2.5 billion by 2004 by eliminating duplicate IT systems, research and development teams, and other employees. But it anticipates an overall 4.9% dip in revenue in the immediate aftermath of the merger because of redundancies in its product lines. HP has said that it won't immediately discontinue any lines or spin off segments of its business should the deal be approved. "The fallacy is that the day after the announcement, the products go away," says Duane Zitzner, president of HP Computing Systems. Any plans to discontinue product lines will be "well-thought-through with customers and developers in mind," he says. "We can't just stop rolling out products."
Fiorina reacted to claims by dissident HP board member Walter Hewlett that she and Compaq CEO Michael Capellas have ulterior motives for seeing the deal approved, because they stand to receive compensation packages worth more than $115 million. "Shareholders have every right to know every detail about employee compensation, but we can't disclose what hasn't been decided," she says. A newly formed executive compensation committee of the new board of directors will determine compensation for employees of the merged companies, Fiorina says. She says that if shareholders reject the deal, HP would consider other alternatives, but wouldn't specify what they are. |
