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

To: hlpinout who wrote (94105)	12/10/2001 6:27:51 PM
From: hlpinout	Respond to of 97611

FOCUS HP's Fiorina faces uphill struggle in completing Compaq deal -------------------------------------------------------------------------------- -- by Vincenzo Pelosi --- SAN FRANCISCO (AFX) - The Packard Family Foundation's rejection of Hewlett Packard Co's contentious plan to buy Compaq Computer Corp leaves HP chief executive officer Carly Fiorina with only a faint hope of getting the deal done, analysts said. And with some observers viewing hostility to the tie-up proposal as also a referendum on Fiorina's leadership, it would seem that her days at the firm may be numbered. On Friday, the David and Lucille Packard Foundation, which owns just over 10 pct of HP, said it planned to vote against the 25 bln usd tie-up, arguing that the company would be better off alone. That rejection, which comes on top of rebuffs from other large shareholders, means that all of the children of HP co-founders William Hewlett and David Packard are opposed to the deal. Such high-profile opposition to the plan -- a tie-up which was in any case viewed as ill-conceived by many Wall Street analysts -- may prove too difficult to overcome for Fiorina and her senior management team. "We believe that the odds of a successful completion of the deal are now less than 20 pct," said Tony Sacconaghi, an analyst with Sanford Bernstein. Sacconaghi said the Packard Foundation's decision was a severe blow to the tie-up proposal as it is likely to swing as-yet undecided HP shareholders against the deal when they vote in early Spring. "The Foundation's board -- which includes three family members, along with (former CEO) Lew Platt and (former chief operating officer) Dean Morton -- is both credible and likely to be highly influential, creating strong momentum against the deal," he said. Analysts say the mathematics of the voting process in the wake of the Packard decision favours those looking to scupper the merger. Under the voting process, 50 pct of HP shareholders must vote for any decision to be carried and, of those who vote, 51 pct must say 'Yes' for the deal to get approved. According to Morgan Stanley's Gillian Munson, institutional investors own 53 pct of HP, and retail shareholders, who typically do not bother to vote, own about 28 pct. So with the Packard family rejection, roughly 70 pct of institutions, who unlike retail investors have a fiduciary duty to vote, will now have to endorse the plan for the merger to go ahead, the broker said. That would be a tall order for HP CEO Fiorina, who has spent much of her time trying to convince sceptics of the merits of the deal. Since she announced the tie-up on Sept 4, the plan has caused much concern among investors, who are worried that the purchase would increase, rather than reduce, HP's exposure to weakening markets. Of chief concern would be HP's position in the personal computer market post-merger. Personal computers account for around half of Compaq's total revenue and one third of HP's, so combining the two would see sales from PCs rising to 29 bln usd, making the division the enlarged group's biggest. However, sales of PCs have been slowing sharply amid the decline in the broader economy. Against such a backdrop, analysts feel Fiorina, who was the first outsider appointed to run the company, may not last much longer as CEO. She joined the firm in 1999, promising to overhaul the company and unify its disparate divisions. But the troubled merger plan and the recent nosedive in HP's fortunes have led many observers to question her tenure at the company. "The vote has to be seen also as a clear vote of no confidence in the current HP management team, since it is far from clear that an alternative to the merger is a return to conditions pre Sept 4," said Richard Chu, an analyst with ABN Amro. According to Lehman Brothers' Dan Niles, Fiorina's departure is now more likely than ever. Among the issues raised by the latest rebuff of the Compaq deal, is "how long it will take HP to get a new CEO", Niles said. "Given the differing visions of the shareholders and Fiorina's management team, it is almost certain that HP will be looking for replacements of at least the CEO and CFO (chief financial officer)," he said. vip/gc © Copyright AFX 2001, All Rights Reserved library.northernlight.com