Gus, You are fast. Here is one early opinion on the merger...
Forbes.com
HP-CPQ: Deal Of The Year--In 1998
By Dan Ackman
The merger between Hewlett-Packard and Compaq Computer is something like the quarterback of the football team wedding the head cheerleader 20 years after graduation. It's still a big deal, but the guests can't help notice that she's a bit pudgy and he has lost some hair on top, drinks just a little too much and still talks about his glory days.
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The $25 billion all-stock deal unites two companies that are both industry leaders but have struggled lately and lost some of the promise of their youth. The idea is that the merger may create a stronger competitor for Sun Microsystems and IBM in the server computer market and a stronger rival to IBM, Dell Computer and Gateway in the personal computer business.
Hewlett-Packard and Compaq said the merged company would be in a position to compete with IBM across virtually its entire product line, including services, which is currently the area in the technology business that still offers decent sales margins.
Just a few years ago, the business world would have gazed in wonder at this deal. But now the question is whether the companies will be able to build on strengths, or whether the merger will highlight weaknesses. Both HP, based in Palo Alto, Calif., and Houston-based Compaq have been hurt by technology sector downturns in the past year, and each company greeted shrinking profits with news of layoffs.
The merger creates what will certainly be an industry leader with 145,000 employees and $87 billion in sales, about as much as IBM. It will be a leading seller of personal computers, computer servers, printers and high-tech services.
Aside from HP's printers, it is not clear whether any of the products will create brand loyalty or allow for better margins. Both companies have lost revenue in the last year--HP has had declining sales for the past two quarters sequentially. Both companies' shares trade for about what they did five years ago. Of course, they both traded much higher in the interim.
For HP, the merger is a renewed bet on the computer business and servers in particular. Compaq and HP are second and fourth, respectively, in worldwide PC sales, but their combined total would surpass industry leader Dell. Both HP and Compaq have been hurt by price wars in personal computers, where all PCs with Microsoft operating systems and Intel processors seem increasingly the same. Some analysts have suggested HP exit the money-losing PC business altogether.
Compaq ranks first in worldwide server sales, while HP is fourth. This is an area where the companies still show some promise.
Late last year, HP tried to expand its services business by acquiring PricewaterhouseCoopers' consulting business. The deal fell apart in the wake of HP's stock price drop. Meanwhile, Compaq has been growing its services business.
Carleton Fiorina, 46, who became CEO of HP in 1999 when she was hired away from Lucent Technologies , will be CEO of the joined companies. Michael Capellas, also 46, the Compaq chairman and CEO, will become president. HP, founded by William Hewlett and David Packard at the end of the Great Depression, is one of the original technology firms, growing up in Silicon Valley while it was still farmland. Compaq, founded in 1982 is a child of the first wave of personal computers.
HP's Fiorina brought about a broad reorganization of the 63-year-old Silicon Valley institution since taking over in 1999. She has come under intense criticism in recent months for repeatedly lowering her forecasts for Wall Street. The company posted a gain of $324 million last quarter, but that was down from $890 million a year ago. Over the past five years its profits have stagnated.
In June, Capellas outlined a broad reorganization plan that focuses the company on services. For the most recent six-month period, its net loss before accounting charges totaled $201 million compared to a profit of $710 million a year earlier.
The companies did not say whether they would cut more jobs as a result of the deal, though they did say it would bring "annual cost synergies of $2.5 billion." In recent months, Compaq has said it will cut 8,500 positions, leaving it with about 60,000. HP is slashing 6,000 jobs, leaving it with a staff of 87,000.
The proposed combination could raise antitrust concerns, both in the U.S. and Europe, which would considerably delay the closing of the transaction. The companies say they expect the deal to be completed by the first half of next year.
Compaq and HP remain powerful companies. They will probably return to profitability as the economy comes back. But neither looks as good as it used to, and it's not clear whether they are any better off together.
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