HP's Fiorina: Merge or wither
(Adds analyst, CFO, details, stock, paragraphs 6-9, 12, 22)
By Caroline Humer
NEW YORK, Feb 27 (Reuters) - With less than three weeks
left to persuade hesitant shareholders to back the biggest
computer merger in history, Hewlett-Packard Co. Chief Executive
Carly Fiorina said on Wednesday her company risked withering if
it did not buy Compaq Computer Corp. <CPQ.N>.
Fiorina and Chief Financial Officer Bob Wayman told
financial analysts at a meeting in New York that
Hewlett-Packard <HWP.N> could take merger charges of up to $1.4
billion if the $21 billion deal went through, revealing the
merger cost figures for the first time.
Wayman said Hewlett-Packard would still beat Wall Street
expectations for fiscal 2003 if the merger went through.
But Fiorina, sounding like a politician in a tight race
ahead of shareholder votes on the controversial merger next
month, focused on a broader theme: that the technology industry
is consolidating and success favors bigger companies that can
serve customers' every need.
Analysts call the March 19 vote by Hewlett-Packard
shareholders a toss up, while opponents accuse each other of
muddying the water with studies and personal attacks.
Institutional Shareholder Services, which many
institutional investors depend on for proxy voting advice,
expects to publish its opinion of the deal early next week, but
some investors at the analyst meeting said they would pay less
attention than usual to ISS, given the high stakes.
WAITING GAME
"Many shareholders are rightfully inclined to wait until
the last minute to commit," Wayman added.
Mona Eriba, a former Wall Street analyst turned technology
fund investor for Rosetta Management, said that she worried HP
had picked the wrong mate and was neutral on the deal.
"Compaq is like Frankenstein. It's a monster company that
failed to integrate prior mergers with Digital Equipment and
Tandem," she said said of Compaq's two largest prior deals.
"Now we have the bride, Hewlett, marrying Frankenstein."
The deal would combine computer and printer maker
Hewlett-Packard with Compaq, the No. 2 PC maker, which also
makes computer servers, computer storage and offers services.
Hewlett-Packard says the merger would allow it to offer
customers one-stop shopping.
Dissident Hewlett-Packard board member Walter Hewlett, a
son of one of the founders, argues the deal would create a
bloated PC business and dilute the value of Hewlett-Packard's
printing franchise.
Wayman addressed those concerns during a meeting with
reporters: "If for some reason it does not make sense to keep
PCs as part of the portfolio, putting the two companies
together gives a better way, that is a stronger asset, to be
able to spin out," he said. "But that is not our plan."
Fiorina also hit back at Walter Hewlett, and denied that
she had cut a lavish deal for her post-merger pay, saying
executives should be paid at market rates.
Hewlett said on Tuesday that Hewlett-Packard in early
negotiations had considered a two-year package worth $70
million, including salary, bonuses and options, for Fiorina. He
said a proposed package for Compaq CEO Michael Capellas totaled
$48 million.
"Standing still means losing ground. Standing still means
choosing the path of retreat, not leadership," Fiorina, the
driving force behind the merger, told a standing-room only
crowd of about 250 analysts, many of whom left the room soon
after she finished.
"In a consolidating industry, do we ensure that our
enterprise computing business has scale to truly be a platform
of choice, or do we allow it to be subscale and slowly wither,"
she asked.
Aiming to harden up its financial analysis of the deal
after repeated attacks by Walter Hewlett, CFO Wayman forecast
the merger would generate charges for restructuring of $450
million to $700 million and an additional $450 million to $700
million for purchase accounting and goodwill costs.
The cash impact of the charges would be $800 million to
$1.2 billion, he said.
He also estimated that earnings per share for fiscal 2003
for the combined companies at $1.51, up 12 percent from the
Wall Street consensus for Hewlett-Packard's stand-alone
earnings of $1.35 a share.
Unlike Compaq, which has emphasized its ability to prosper
even if the deal fails, Hewlett-Packard did not offer a longer
term outlook for an independent future.
In afternoon trade on the New York Stock Exchange, HP
shares were off 1 cent to $20.00, while Compaq fell 28 cents to
$10.12.
Shares of HP have fallen 14 percent and Compaq is down 16
percent since the Aug. 31, the last trading day before the
merger plan was announced, underperforming competitor IBM,
which is down about 1 percent.
(Additional reporting by Eric Auchard in New York and Peter
Henderson in San Francisco)
((-- New York Newsdesk, 646 223-6180))
REUTERS |
