Hewlett Can't Alter Compaq Purchase Terms Enough, Analysts Say
By Cesca Antonelli
Palo Alto, California, Dec. 14 (Bloomberg) -- Hewlett-Packard Co. Chief Executive Carly Fiorina won't be able to satisfy investors even if she alters terms of the planned $22.8 billion purchase of Compaq Computer Corp., investors and analysts said.
``It's not a matter of price, as the whole rationale for the merger is incorrect,'' said Thomas Rath, fund manager at Safeco Asset Management Co., which owns 1.34 million Hewlett-Packard shares. Redoing the deal would be ``a modest plus but it doesn't change my mind. I don't like the direction they're going.''
The largest stakeholder, the David and Lucile Packard Foundation, said last week it has ``preliminarily'' decided to vote against the deal. That's got some analysts and investors speculating that Fiorina will try to restructure the acquisition in ways that would make dissenters change their minds. Ideas include lowering the price and diminishing the impact of low- profit personal computers, maybe by spinning off the business.
Officials at both Hewlett-Packard and Compaq say they're not interested in restructuring the deal. Even if they change that decision, analysts and shareholders said it won't matter. Compaq investors won't accept any changes, they said.
``If H-P came back to try to restructure the deal, I can't imagine that it would be proper for Compaq to accept,'' said Bob Sutherland, an analyst with Technology Business Research Inc. ``If this is something that H-P is considering, it's a reflection of their desperation right now.''
`A Good Deal'
Shares of Palo Alto, California-based Hewlett-Packard fell 3.4 percent yesterday and have fallen 9.2 percent since the announcement on Sept. 3. Compaq shares fell 4.1 percent yesterday and have fallen 24 percent since Sept. 3.
Compaq's board, which met twice over the weekend, had a regularly scheduled meeting yesterday. The Houston-based company isn't interested in renegotiating the terms, one board member said before the meeting.
``There is no talk or intention to renegotiate the deal,'' Thomas Perkins, founder of venture-capital firm Kleiner Perkins Caufield & Byers, said in an interview. ``It's a good deal, and it's solid.''
Hewlett-Packard doesn't want to renegotiate either. ``It's not on the table,'' spokeswoman Rebeca Robboy said. ``We intend to bring the deal we announced in September to a shareowner vote.''
One Tricky Word
The speculation started with one word: preliminarily. Analysts saw that in the Packard Foundation's press release and heard that Hewlett-Packard planned to issue new information that might make the group change its vote, and they said that meant a new deal could be in the works.
The Packard Foundation said ``preliminarily'' because the proxy isn't available yet, and it wasn't meant as a sign that the group would reconsider if the terms were different, said board member and chief executive Richard Schlosberg.
``We weren't trying to send a signal,'' he said. ``We don't expect to consider something else.''
Walter Hewlett, a company director and son of co-founder William Hewlett, said in November he'd oppose the acquisition because it would make Hewlett-Packard too dependent on PCs. After the Packard family decided to vote against it, Hewlett said he'll solicit proxies from other shareholders.
Fiorina could reduce the purchase price for Compaq or the companies might find a way to spin off the PCs, said Bear Stearns & Co. analyst Andy Neff, who in January had said Hewlett-Packard would buy Compaq and to avoid both stocks.
``Deals get restructured all the time,'' Neff said in an interview. ``If a deal is less bad, maybe that's good. Maybe they can make something work.''
Fiorina's Stance
Some shareholders had already been pushing Hewlett-Packard to abandon PCs, in favor of focusing attention on its more-profitable printer unit. Fiorina has said she won't consider getting rid of PCs because they help sell other products.
``Customers combine desktop PC purchases with other purchases,'' Fiorina said in an October interview. ``There's value in the PC business.''
Even if Hewlett-Packard spun off PCs, that may not convince wary shareholders. They wonder if a separate PC division could survive and still say that adding Compaq's PC sales is the wrong strategy.
``It's not clear to me what would be a better deal,'' said Richard Wilk, director of global investments at PanAgora Asset Management Inc., which owns Compaq shares. ``Trying to merge these two organizations would be difficult.''
Lowering the price won't help either, investors said.
``Compaq is already thinking it might already walk away,'' said Rath. ``If you lower the price, the deal breaks up.''
Compaq board member Perkins said renegotiating the deal wouldn't convince Hewlett-Packard family members anyway. Analysts agreed.
``I don't think it's ever going to convince the families,'' said Tom Burnett, president of Merger Insight. ``You're never going to win over that 18 percent.'' |
