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

To: hlpinout who wrote (96114)	3/15/2002 6:50:46 AM
From: hlpinout	Respond to of 97611

March 15, 2002 03:10 `Clean Team' Prepares for HP-Compaq Merger By Tracy Seipel, San Jose Mercury News, Calif. Mar. 15--It's a marriage of convenience, strategy -- and maybe even survival. And like all unions, good or bad, this one might not work out. But if Hewlett-Packard's proposed $21 billion acquisition of Compaq Computer wins shareholder approval Tuesday, both companies are counting on the past six months of intensive pre-merger planning to help them resolve the inevitable issues of duplication, miscommunication and personality that any new partnership has to negotiate. Since October, a group of full-time employees from both companies -- now up to 900 people -- has been designated to work on the back end of the deal. They have spent 500,000 hours deciding which product lines will live and which will die, which suppliers and partners will get more business and which will be dropped, which offices will be occupied and which vacated. Most importantly, they are making decisions that will affect which 15,000 employees will lose their jobs as the two companies integrate their combined workforce of 150,000 people. And they are doing all of this even as the two companies continue to compete against each other in the marketplace. "This is not just about running down to Houston and hoisting the HP flag on the front lawn," said Crawford Del Prete, senior vice president of hardware research at IDC. "HP has done everything they possibly can...doing due diligence on what happens on day 1, day 10, day 50 and day 100." To help them achieve their integration goals, the companies hired outside business consultants that specialize in both the product- and people-side of mergers. "Why tech mergers don't work is because they don't do the fundamental planning. They don't prepare," said Dan Plunkett, senior partner with Mercer Delta, one of the firms helping in the integration process. "The minute the bell sounds, they try to figure it out all at once." HP and Compaq say their team, led by HP executive Webb McKinney and Compaq Chief Financial Officer Jeff Clarke, has studied why other mergers have succeeded or failed -- including looking at Compaq's own difficult acquisition of Digital Equipment Corp. in 1998. If the deal is approved by shareholders, HP officials say the merger will be closed in early April. The new company will have four business units, and HP has named the head of each one, but the Palo Alto-based company won't release the names of the extended management teams. In fact, HP and Compaq won't say much about what the combined company will look like. They say they can't release the names of the surviving product lines for legal reasons. They won't identify the employees who will be laid off to avoid unnecessary anxiety. And they won't identify details of where the expected $2.5 billion cost cuts will come from. The planning team -- nicknamed "The Clean Team" because they don't mix with the rest of the employees -- have spent their days in endless meetings. And the team meetings won't end if the deal passes. Company officials said planning meetings will continue for a year or more, depending on what is needed to integrate the new company. Decisions are being made through an "adopt and go" approach, in which teams in each area come together, quickly identify which company has the better product or way of doing business and adopt it for the new company. "The alternative to `adopt and go' is trying to create something new in every part of the company, and that creates a lot of complexity, slows down the process, and makes it all unnecessarily difficult," McKinney said during a conference call with reporters this week. The recommendations are reviewed and approved every Thursday by a steering committee made up of Clarke, McKinney, HP Chief Executive Officer Carly Fiorina, Compaq CEO Michael Capellas, HP Vice President of Human Resources Susan Bowick and Compaq Chief Information Officer Bob Napier. Documents related to all decisions are stored in an "e-Room" on a secure intranet that already has about 3,000 folders and 10,000 files. Members of the integration teams say the most obvious differences are in way the companies do business, such as the way they manage spare parts for their computer products. But there are other, more subtle differences. HP employees operate through voice mail, while Compaq employees prefer e-mail. HP employees tend to be more analytical and thoroughly evaluate data before making a decision, while Compaq employees tend to make decisions quickly and fix problems later. Compaq workers say their company holds individual people more accountable for their successes and failures than HP, where responsibility -- and rewards -- are more collective. ----- To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to bayarea.com

To: hlpinout who wrote (96114)	3/15/2002 6:51:34 AM
From: hlpinout	Read Replies (1) \| Respond to of 97611

March 15, 2002 03:10 Customers Weigh In on HP Deal By Therese Poletti, San Jose Mercury News, Calif. Mar. 15--Like the shareholders of Hewlett-Packard and Compaq Computer, customers seem to have mixed feelings about the two companies' proposed $21 billion merger. Their biggest worry: Most technology mergers are turbulent, leaving customers to wrestle with abandoned product lines and erratic customer service. "Every time there is a mega-merger in the computer industry, it's talked up like it's going to be the second coming, and it's a bunch of baloney," said Maryfran Johnson, editor in chief of Computerworld. "Users know this. They are not going to tear out and throw away their HP and Compaq systems, but they are going to worry about it the next time they are going to buy something." Both HP and dissident board member Walter Hewlett, who is opposing the merger, have touted various customer surveys on the deal that support their respective positions. This week alone, at least three customer surveys were released, and other dueling surveys have surfaced in previous weeks. Palo Alto-based HP, for example, cites a recent survey done by Deloitte Consulting, which surveyed 2,354 information technology managers and concluded that 57 percent had a positive view of the merger, 13 percent had a negative view and 27 percent expected no impact from the deal. Meanwhile, Johnson said that the percentage of IT managers and chief information officers who oppose the deal has been rising since Computerworld took its first surveys of the deal when it was first announced in September. In it most recent survey of 129 information technology managers, the weekly trade publication found that 49 percent believed the deal would be good for their companies, and 47 percent said it wouldn't be good and 33 percent did not know. Also this week, Merrill Lynch analyst Steve Milunovich released a survey of 100 chief information officers, 75 in the United States and 25 in Europe. "More HP and Compaq users are against than for the merger," wrote Milunovich, who nevertheless supports the deal. "Both vendors look to suffer spending declines this year, with Compaq worse off than HP." "We talk to people all the time, and for every one that likes it, there is one that doesn't like the deal," said Don McDowell, a vice president at Forsythe Solutions, a company in Skokie, Ill., that resells products from IBM, HP, Sun Microsystems and Compaq. Forsythe said he remains committed to all of his partners, but he recently devoted more resources to IBM through a new partnership program recently started by the computer giant. So far, both HP and Compaq have said that they have not had huge customer defections because of the deal, although competitors such as IBM and Dell Computer claim to be stealing business from the distracted merger partners. IBM said that as a result of its new partner program for resellers, code-named "Bluer Pastures," it has gained 56 new business partners, 14 from HP, 8 from Compaq and 18 from Sun. If the merger does go through, customers say it's important for the companies to quickly unveil their product road maps and merge their sales forces. But Craig Conway, the chief executive of PeopleSoft, which buys products from both HP and Compaq, said he isn't worried about how the integration will affect his company. "Companies don't fail or succeed because they could not integrate," said Conway, who is promoting the deal. "They fail because their joint solution is not attractive in the marketplace, and that is not the case here." -----

To: hlpinout who wrote (96114)	3/15/2002 6:56:54 AM
From: hlpinout	Read Replies (1) \| Respond to of 97611

LEX COLUMN: HP/Compaq LEX COLUMN Financial Times; Mar 15, 2002 HP/Compaq Hewlett-Packard's vote on the proposed Compaq acquisition is too close to call. By fighting the merger, Walter Hewlett, dissident director and family shareholder, has provided disgruntled shareholders with an alternative to walking. On balance, shareholders would be advised to vote "no" next week. HP faces a difficult future with Compaq or alone. This is a bear market merger between two struggling companies. The potential cost synergies are attractive. But the execution risk is huge. And HP shareholders are being asked to pay 47 times Compaq's 2002 earnings for the privilege. HP and Compaq estimate Dollars 2.5bn of cost savings. That would provide a focus for managers and shareholders but achieving it will be a challenge. The companies admit revenue attrition will be significant: the estimate of 5 per cent might be optimistic; the assumption it will all be low-margin business almost certainly is. HP and Compaq have done extensive planning and Compaq has some (bitter) experience. There is still no precedent for a big, successful technology merger. Were Compaq the perfect partner, it might be worth taking the risk. Yet buying Compaq will turn HP into the world's biggest PC manufacturer. Alone it derives 40 per cent of revenues from printing and imaging, and 20 per cent from PCs. HP/Compaq would derive 30 per cent of revenues from PCs and 25 per cent from printing. The combined, loss-making, PC business could be spun off, but a premium for Compaq will already have been paid. The contribution from Compaq's servers and services businesses is firmly skewed to the low-end. Most analysts are unimpressed by the combination. Nor are customer surveys terribly encouraging. It is not surprising that antitrust regulators quickly waved the deal through. Competitors are rubbing their hands. A low price might still tip the scales. But Compaq's standalone earnings forecasts have collapsed since the deal was announced. Consensus forecasts are down 60 per cent for this year and 40 per cent next, according to Thomson Financial/First Call, while HP's are up 50 per cent and down 16 per cent respectively. HP would be paying 47 times 2002 earnings and 26 times 2003. Since announcing the acquisition, HP's shares have dropped 14 per cent, underperforming the S&P tech component by 17 per cent. If the deal fails, HP shares should jump. Presumably Carly Fiorina would leave. There is no reason why others should follow. The new CEO will have big challenges. Among them is beefing up the enterprise business through smaller, more targeted, and more manageable acquisitions. Copyright: The Financial Times Limited 1995-2002

To: hlpinout who wrote (96114)	3/15/2002 7:05:07 AM
From: hlpinout	Read Replies (1) \| Respond to of 97611

Banc One's Salopek Comments on Vote to Support Hewlett-Packard By Cesca Antonelli Columbus, Ohio, March 14 (Bloomberg) -- Banc One Investment Advisors money manager Steve Salopek comments on the company's decision to support Hewlett-Packard Co.'s planned $21 billion purchase of Compaq Computer Corp. Banc One Investment Advisors is a unit of Bank One Corp. and owns 0.26 percent of Hewlett-Packard's shares. On the reasons for the decision: ``When we looked at this, basically the alternatives were H-P merged or a stand-alone company. Obviously, there are concerns about both. Although there is risk in a merger, over the longer term that is the better option. You're looking at least six to 12 months of management turmoil, possibly turmoil on the board. Call that `transition risk,' and then you look at Walter Hewlett's arguments for alternatives. Those alternatives have costs, and when we applied costs to those alternatives, it results in pretty substantial dilution.'' ``They have under-invested in intellectual property for basically the last 10 years, and that is a long workout. They have to recreate themselves all the time. We like to see 10 to 15 percent of sales (spent on R&D), and H-P is running in the single digits. They would have to double R&D spending. The payback on that is a long time.'' ``Just looking at earnings growth, at least there is the opportunity for consolidation as well as rationalization of costs. H-P is actually gaining intellectual property (in server computers and storage).'' On the reason for making the decision public: ``Our PR people said I had to. To be honest with you, I don't know.'' On who has momentum: ``It's slightly in the company's favor. This is going to be very, very close. Part of it is that as we go on, the opposition still is not putting enough detail into the options, into the alternatives. And I think that hurts them.'' On the personal attacks in the proxy fight: ``It's been nasty from the beginning. We've tended to kind of discount that. If this doesn't go through, not only are you going to have transition issues because obviously there are going to be some management changes, I'm also concerned about this: they're going to have a pretty dysfunctional board because you have a proxy fight being led by a board member. If this doesn't go through, either a lot of the people who supported this walk, or I don't see how these people can work together and actually come to decisions. They've taken this to a personal level.'' On whether managers and directors will be able to work together: ``That's a significant risk.''