H-P meeting to focus on merger
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 8:12 PM ET Feb. 25, 2002
NEW YORK (CBS.MW) - Hewlett-Packard will bring its case directly to Wall Street Wednesday for the last time before shareholders vote on the printer-and-computer-maker's planned acquisition of Compaq.
Top executives including Carly Fiorina, H-P's chief executive, will attempt to woo financial analysts ahead of a shareholder vote on March 19 in Cupertino, Calif. that will decide the controversial merger's fate.
"The big-time focus at the meeting will be about the merger, as it should be - that's the $20 billion question," said Dan Niles, analyst with Lehman Bros. in San Francisco.
The analyst meeting comes days ahead of a decision by the Federal Trade Commission, which is expected to clear the deal. The merger has already received approval from the European Commission and the Canadian Competition Bureau.
The financial analyst meeting is also days ahead of an influential report by Institutional Shareholder Services, a Rockville, Md.-based firm that advises more than 950 institutional investment clients on how to vote on proxy issues. The advisement service's decision could come as early as Friday.
H-P's management is likely to make additional arguments as to why the merger has been well thought out by management and the board, and why it is the best strategic option to boost sales, cut costs, and increase the company's stock price over time.
Executives may also give hints as to whether or not they are gaining support among institutional shareholders, which own about 57 percent of the company's shares.
"The mechanics of the deal are pretty simple from this point on - it's just swaying the shareholders," said Bill Shope, analyst with ABN Amro.
The company faces bitter opposition from Walter Hewlett, H-P board member and son of company co-founder William Hewlett, who says the merger will overexpose H-P to the weak personal computer business and cut the price of H-P's shares.
While analysts meet with H-P's management, some analysts are expecting Hewlett to come out with additional statements against the deal.
The day-long analyst meeting will feature presentations from Fiorina; H-P CFO Bob Wayman; Webb McKinney, who is the H-P executive helping to lead integration efforts between H-P and Compaq; and presidents of H-P's computing, imaging and printing and services businesses.
The executives are expected to address questions about its financial strength through the rest of the year. Shope says management will likely say it's comfortable with its full-year earnings target of $1.11 a share, on sales of $45.6 billion.
H-P beat earnings expectations for its January quarter, with help from stronger consumer sales, and a profit spike in the company's imaging and printing business. The unit's operating margin increased to 14.6 percent of sales, up from 12 .9 percent in the same period last year.
Meanwhile, digital camera and photo printer sales increased 34 percent from the same time last year.
In addition to Wayman, the CFO, a key presenter at the meeting could be Vyomesh Joshi, president of H-P's imaging and printing business. He is likely to be asked whether the strength in the business segment will continue.
In a recent filing with the Securities and Exchange Commission, Joshi talked about growth in digital imaging problems such as scanners and cameras, and new low-end printers.
Before the meeting, some analysts have been questioning whether H-P beat earnings estimates by building up inventories in its sales channels.
For the first time in several quarters, H-P reported shortages of some products in the January period. The company expects to increase product inventory of cameras and some printer categories in the second quarter.
In late January, Banc of America estimated that H-P already had about 61 days of product inventory - more than double the average of its four largest competitors.
But Niles said he isn't expecting any huge negative surprises when H-P files its 10Q quarterly report with the Securities and Exchange Commission, which should give more detail on inventory levels and about the January quarter, in general.
For the quarter ended January, H-P's net earnings more than tripled to $484 million, or 25 cents a share, up from $141 million, or 7 cents a share, earned in the same period last year. H-P reported an investment loss of $365 million in the year-ago quarter, and had a negative tax effect of $272 million.
H-P's pro forma earnings, not counting $86 million in restructuring costs related to Bluestone and Compaq, totaled $564 million, or 29 cents a share, down 31 percent from $812 million, or 41 cents a share, in the year-ago period. Analysts had expected the computer-and-printer-maker to earn 25 cents a share, according to a survey conducted by Thomson Financial/First Call.
Shares of H-P (HWP: news, chart, profile) rose 69 cents to close at $19.98 on Monday, while Compaq (CPQ: news, chart, profile) shares rose 10 cents to $10.60.
Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com. |
