Borrowed from my friend Skep at The Zoo:
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HP-Compaq: Top CEOs Cast Their Votes
Shareholder advisory group ISS may have thrown its support behind the merger, but how do top executives like Michael Dell view the deal?**
FORTUNE.COM
Tuesday, March 5, 2002
By David Kirkpatrick
HP-Compaq: Top CEOs Cast Their Votes
I wandered into the opening cocktail party for the Business Council meeting in Boca Raton, and Michael Dell beckoned me over. He was the one who had invited me to come moderate a session at this gabfest for 92 top CEOs. The room was filled with legends--among them Chambers, Chenault, Esrey, Gerstner, Immelt, Komansky, Marriott, Scott, and Weill. Michael wanted to know whether I thought the HP/Compaq deal would go through.
I told him I thought the vote seemed so close that predicting the outcome was impossible. This didn't bother him. So far as he was concerned, it was a hopeless effort. "Consolidation in our industry has reached the desperation phase," he crowed, asserting that nothing about this combination should keep his company from continuing to scoop up market share.
"But what's their alternative?" I asked in reply, noting that scale mattered more than ever in computing. I was also suspicious of his line. In an ad, dissident HP Director Walter Hewlett had quoted Dell celebrating the deal's effect on his business. If he really thought it would help him, I said, he probably wouldn't say so publicly. Why jinx a good thing?
"Let's go get the opinion of an expert," he suggested, leading me toward a great legend of American business, one who's done many a deal, and who was standing nearby with drink in hand. Michael asked this veteran's opinion. "At this point they've got to do it," the titan replied. "But to make it work is going to be very tough."
That was a common view among these guys--regardless of its genesis, now HP and Compaq need this merger to happen. In conversations over the next couple days, the subject came up as much as the economy (which they see as grim), and more than the Enron aftermath. (Perhaps that's just too close to home. Ken Lay is still one of the group's vice chairmen.) The CEOs I spoke to split on whether the merger proposal actually will pass. They are nearly unanimous, though, in thinking that Walter Hewlett has breached fundamental rules of corporate governance to have voted for the deal as a board member and then to fight it so hard, and dirtily, afterward.
This crowd knows both Carly and Capellas, and many think the two would make a good team--with Fiorina the star front-woman and Mike applying tech-savvy operations expertise. As for selling the deal itself, many were amazed at Fiorina's recent poise, confidence, and conviction.
After dinner, I stumbled back to my luxurious room, turned on the TV, and there, talking to Charlie Rose, was Carly Fiorina. Rose threw Hewlett's worst complaints at her, and she was resolute and unflustered. She rebutted Hewlett's insistence that HP ought to retrench as an imaging and printing company. To make that dominant business grow, she insisted, HP needs to surround it with other strong new businesses-like wireless, PDAs, and high-end enterprise computing. And it's true--one reason HP's printing business became such a powerhouse is that the company was able to bundle PCs and printers. Who cares if you lose a few bucks on a PC sale if in so doing you lock in a paper and ink annuity?
The next morning the Financial Times reported that Dell Computer is, uncharacteristically, now considering buying some service businesses. That suggests a less-sanguine response to the consolidating industry than Dell let on to. If PCs become more and more part of a larger transaction including services, printers, etc., could Dell itself end up the odd man out? Probably not, but it's possible.
That night one CEO insisted that any HP shareholder who really thought the Compaq deal was a loser would logically sell their shares rather than vote no. Why hold on, he asked, if a no vote will inevitably lead to quasi-chaos at HP? He expects to see Fiorina leave if the deal fails, along with the entire board (except Hewlett) and a number of other top managers. That would surely be a disaster for the stock. He predicts HP and Compaq will instead go to the dissident Packard Foundation and craft a last-minute compromise to win its support. But another CEO, who knows this territory intimately, said that the urge for solidarity between the families of the founders is simply too strong. The two actually made a bet. But nobody I spoke to in Boca disputed that if the deal dies, HP is in trouble.
HP shareholders meet in a mere two weeks, and the outcome remains uncertain. Today influential shareholder advisory group ISS came out in favor of the merger, raising its prospects considerably. My guess? The deal will happen. |
