bmw
even if they are not "strong-armed" it gives intel unfair advantage.
Regards
-Albert
Hewlett-Packard, Compaq May Give Concessions on PCs (Update3)
2001-12-03 16:15 (New York)
Hewlett-Packard, Compaq May Give Concessions on PCs (Update3)
(Closes share prices.)
Washington, Dec. 3 (Bloomberg) -- Hewlett-Packard Co. may
have to permit more competition among personal-computer makers in
retail stores to satisfy antitrust regulators and win approval to
purchase rival Compaq Computer Corp., lawyers and analysts said.
Hewlett-Packard's strategy will depend largely on whether
regulators define the PC market to include Internet sales or just
sales at retail stores. Together, the two companies account for 78
percent of the desktop PC market in U.S. retail stores, according
to NPD Intelect.
``Hewlett-Packard and Compaq will argue that the market goes
beyond retail, but regulators typically view retail as a market in
and of itself,'' said Hillard Sterling, an antitrust lawyer who
helped defend Staples Inc.'s unsuccessful plan to buy Office Depot
Inc. in 1997.
While analysts don't expect regulators to block the $23.3
billion stock acquisition, they may delay the purchase by asking
for concessions from the companies. The prime targets for
government officials are likely to be retail PC sales, because
Hewlett-Packard and Compaq are the top two sellers in that market,
and server computers, analysts said.
The proposed merger will be reviewed by the U.S. Federal
Trade Commission, the European Commission, the Canadian
Competition Bureau and officials of other countries.
The companies expect to complete the purchase by May 31, with
a possible three-month extension if needed. Further delays could
harm the combined company's sales and profit, analysts say.
Spokespeople for Hewlett-Packard, Compaq and the FTC declined to
comment.
Retail PCs
The two companies say that by combining, they will be able to
compete better in offering more profitable services, servers and
storage devices, rather than narrow-margin PCs.
Investors, including the sons of Hewlett-Packard's co-
founders, oppose the deal because it increases the company's
exposure to the PC market. Since the acquisition was announced on
Sept. 3, shares of Hewlett-Packard fell 7.4 percent through
Monday's close, while Compaq dropped 18 percent.
Compaq shares are trading about 25 percent below Hewlett-
Packard's per-share offer, an indication that investors are
doubtful the deal will be completed. Compaq remained unchanged at
$10.15 today while Hewlett-Packard fell 49 cents to $21.50.
Antitrust regulators will examine the companies' dominance in
the retail PC market, said Harvard Law School professor Einer
Elhauge.
By comparison with Hewlett-Packard and Compaq's combined 78
percent, eMachines Inc. had 11.2 percent of the desktop PC market
in U.S. retail stores, and Sony Corp. had 8.2 percent, NPD
Intelect said. Retailers worry about relying on one company for
too many products like PCs, handheld computers, printers and
cameras, analysts said.
Retail vs. Online
The question before the government is whether that matters
anymore.
``Is that the right market, when consumers can buy over the
Internet?'' Elhauge said.
Dell Computer Corp., which sells only on the Internet, by
telephone and directly to corporations, is now the largest PC
maker, with 14 percent of units shipped worldwide in the third
quarter, according to Gartner Inc. Compaq and Hewlett-Packard's
shipments combined would have accounted for 17 percent.
That margin is small by comparison with software maker
Microsoft Corp. and chipmaker Intel Corp., which each control more
than three-quarters of their markets. Many analysts say Dell
eventually would reclaim the PC title from a combined Hewlett-
Packard and Compaq.
``The burden is on H-P and Compaq to show that consumers
readily substitute other types of purchases if retail isn't
available,'' Sterling said. ``That's a high hurdle to pass.''
Possible Solutions
If retail does matter, regulators might suggest remedies such
as contracts that would allow retail stores to have more
competition, lawyers said.
Houston-based Compaq has exclusive contracts to sell at
stores of RadioShack Corp. and Sears, Roebuck & Co., while Palo
Alto, California-based Hewlett-Packard is prominent in Office
Depot and Best Buy Co. outlets.
``If they've got contracts that make stores carry so many of
their computers or have to be exclusive, remedies could be you
can't preclude competition in that way,'' Elhauge said.
If the companies reduce their presence in the retail side,
some investors might actually cheer. Retail sales aren't as
profitable as direct sales.
The concentration of power in the market for servers, the
machines that run Web sites and networks, may also cause concern
among regulators, analysts said. Together, the two companies had
37 percent of worldwide server shipments in the second quarter,
according to Gartner. Along with Dell's 18 percent share and
International Business Machines Corp.'s 17 percent, that would
mean three companies would control 72 percent of the market.
``If they license some of the server technology to give other
companies a chance, that might be satisfactory,'' said Dan Niles,
an analyst at Lehman Brothers, who doesn't own shares of either
company.
Delays
If the companies don't accept what regulators propose, that
means litigation and delays, Sterling said.
The lawyers and analysts are split on whether Europe will be
tougher on the merger than U.S. regulators. Earlier this year, the
EU blocked General Electric Co.'s $47 billion acquisition of
Honeywell International Inc., ruling that the purchase would have
stifled competition and hurt consumers.
Still, most say that in the end, the European regulators,
like their U.S. counterparts, will approve Hewlett-Packard's
acquisition of Compaq.
``This deal will probably survive the government's scrutiny,
but not without some modifications,'' Sterling said. ``There's no
reason for regulators or other companies to scuttle the deal.'' |
