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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Night Writer who wrote (93129)	9/19/2001 5:37:47 PM
From: Captain Jack	Respond to of 97611

NW-- The ONLY thing to move the mkt up is an indication EPS will get better and not worse. That looks to be a long way into the future!

To: Night Writer who wrote (93129)	9/19/2001 6:34:44 PM
From: Elwood P. Dowd	Read Replies (3) \| Respond to of 97611

HP pushing merger, analysts say turmoil might help Wednesday September 19, 6:28 pm Eastern Time HP pushing merger, analysts say turmoil might help By Peter Henderson SAN FRANCISCO, Sept 19 (Reuters) - Hewlett-Packard Co. (NYSE:HWP - news) is back selling its plan to take over Compaq Computer Corp. (NYSE:CPQ - news), facing the same skeptical investors who have stripped the deal of a third of its value since it was unveiled. But the devastating air attacks in New York and Washington, which could tip the global economy into recession, may also have improved the chances for the computer industry's biggest deal ever to go through as planned, analysts said. The shakier economy could actually strengthen management's hand by underlining the need for consolidation in the computer industry as business slows, they said. ``In a tougher economic environment, you see more consolidation, more mergers,'' said Lehman Brothers analyst Dan Niles, one of the most pessimistic on Wall Street about the chance for a quick turnaround for the technology sector. European regulators, considered more likely to stop the deal because of competition concerns, would be less eager to interfere if the economy soured, Niles said. ``To some extent I could argue the regulators are probably less likely to derail a merger,'' he said. The deal could offer huge rewards that hinged on deft integration, he added. To be sure, last week's destruction of the World Trade Center and damaging of the Pentagon, has further eroded the value of HP's shares along with the broad U.S. stock market. HP shares fell about 5 percent on Wednesday and Compaq's lost about 4.6 percent. Since the proposal was unveiled on Sept. 3, investors have savaged both, dragging the deal's value down to $16 billion from $25 billion on the morning it was announced. Under the terms of the merger, Compaq shareholders would receive 0.6325 shares of HP for each share owned. That valued each share at Wednesday's close at $9.74, a near 16 percent premium to Compaq's close at $8.13 That represents an unusually high level for the spread, say arbitrage traders, who trade based on the likelihood of deals going through. Before the hijackings, deals considered ``safe'' -- those not likely to fall apart -- typically traded at spreads of 9 or 10 percent, traders said. But analysts and arbitrage traders say the benchmarks for ``safe'' spreads ought to be reconsidered to account for the more uncertain trading environment. ``Should the Compaq deal be (negatively) affected by the World Trade Center disaster? I don't see why,'' one trader said. The deal carries no restrictions, or collar, that would automatically cancel it if stock prices dropped too sharply. ``I know they are determined to make it happen. It is the will of the management versus the will of the market,'' said investment banker Afsaneh Naimollah, a managing partner Chela Technology Partners. ``Personally, I think it is a bad thing.'' Hewlett-Packard Chief Executive Carly Fiorina says the deal has been misunderstood. HP would take the No. 1 spot in personal computer sales from Dell Computer Corp (NasdaqNM:DELL - news) if it and Compaq's operations were merged. Analysts have said it is likely to lose sales to competitors. Even so, Fiorina says that is not the point. Resuming her lobbying, she told European industry analysts this week that more services and high-end computer systems -- areas dominated by International Business Machines Corp.(NYSE:IBM - news) -- was the key. ``This is not predicated on PCs. It's actually all about enterprise computing and professional services,'' she said. Earlier this month she told an audience in Boston the firms ``fit together like a zipper''. SHARE PRICES NOW 'DEFENSIBLE' Sanford Bernstein analyst Toni Sacconaghi said the hijackings and questions about whether the companies could successfully integrate appeared to have created a ``compounded uncertainty'' that hit the stock. But he also saw HP's lucrative printing franchise alone worth more than $20 per share, offering support to the stock. ``You are starting to get to highly defensible valuations.'' The volatility of U.S. markets after the attacks has also taken the spotlight off Fiorina, potentially giving her time to make her case, he said. But it was uncertain whether that would be enough to make a difference, he said. Management had girded for battle before they announced their plan, Niles said. ``They knew what they were getting into before they announced the deal.'' The biggest losers so far have been Compaq shareholders, but that struggling company is in no shape to go it alone anyway, said Bear Stearns analyst Andrew Neff, who has long argued the industry faces consolidation. ``I still think Compaq needs this deal to happen,'' Neff said.