WHY THE HP/COMPAQ DEAL WILL FAIL
-- By Michael R. Zimmerman --
There's a pretty well known school of thought that says
common interests make for successful personal relationships.
(Cue grandma: "Your mother and father were like two peas in
a pod.")
Like minds, and all that.
While that may be true for marriages, and I don't have an
MBA, when it comes to mergers and acquisitions between
companies, history seems to show that acquisitions tend to
go best when gaps in product or services lines are filled or
accentuated. And even then it's a crap shoot as to whether
it'll work out.
But with Hewlett-Packard's proposed buyout of Compaq, I
can't tell what HP gets out of the deal, other than, well, a
whole lot more of what it already has--PC-based hardware,
services, and some network management software.
So the question that was first raised on Sept. 4 when the
deal was announced is just as pertinent today, three months
later: Why do it? It's not a bad question. In fact it's
probably the single most-asked question of Carly Fiorina and
Michael Capellas in the last three months, and for good
reason. No one has a good answer.
It's the central reason the Packard Foundation is meeting
this Friday to hear a report from an outside consultancy on
the pros and cons of the proposed acquisition. And it's the
reason Walter Hewlett, son of HP co-founder William Hewlett,
has been flying around the country trying to convince
institutional shareholders to vote against the buyout. No
one has a good answer.
Consider the aftermath of the announcement on Sept. 4. The
collective "Huh?" blurted by Wall Street sent shares of both
Compaq and HP plummeting and sank the value of the buyout by
about $3 billion by the time the dust settled several days later.
In fact, Carly's own message has morphed some lately, from
the calm merger-of-equals into a more panicky tone. She
reportedly told securities analysts last month: "We don't
have the luxury of an incremental approach. We need to take
a bold step to address these challenges now," the Sunday New
York Times reported.
Well, Why not?
Several years ago, Eckhard Pfeiffer was criticized, but not
badly, over Compaq's proposal to acquire Digital Equipment.
In fact, analysts weren't critical of the subject of the
deal as much as they were the price tag of the deal, $9
billion. The price was steep because Compaq was getting a
world-class global services operation, not to mention some
choice semiconductor technology, patents and fabs for its
money. (Of course, Compaq would ultimately botch the
integration of the services unit, and discontinue the Alpha
processor, but that's another story.)
The point is, it was part of Eckhard's grand and complex
plan to evolve Compaq from its PC-centric image into an
enterprise computer company, a la IBM. The Digital
acquisition would also help Eckhard get closer to his
self-imposed revenue goal of $40 billion, back when $40
billion was something.
So, when contrasted against the Pfeiffer plan, Carly's
latest statement comes across as almost desperate. As if
there's nothing else that can be done.
Indeed, I don't see this buyout as a master plan at all. In
fact, I think there's probably a lot that hasn't been
reported about the conversation Carly and Capellas had over
the summer, the talk in which they first discussed the
possibility of an acquisition. Considering all that has been
happening in the economy this year, and in the PC industry
especially, I'd bet the conversation, after getting some
licensing business out of the way, took a dramatic turn
toward the miserable state of their respective companies.
Remember, Carly and Capellas have a bond of sorts, in that
they're close in age and were both made CEOs for the first
time at almost the exact same time. They probably lamented
not only the economy and their troubles, but also the common
rivals that put them there. And then at some point, she
probably said to him, very generally, but sympathetically:
"Well, what are you going to do?" To which he probably
replied, "I just don't know." Capellas probably then put the
question to her, to which she replied the same way. At that
point, I can imagine the conversation taking an even more
dramatic turn. But, I'm just guessing.
All that said, I don't buy the argument that "something"
akin to buying Compaq must be done to save HP. That this is
HP's best shot at getting through this economic storm. And I
don't think the Packards and the Packard Foundation are
going to buy it on Friday. And I don't think the
shareholders are going to buy it in February when they meet
to vote on the proposal.
Do you buy it?
To e-mail eWEEK Executive Editor of News Michael R.
Zimmerman, click here:
mailto:mike_zimmerman@ziffdavis.com |
