Compaq shareholders broadly approve HP merger

By : |March 20, 2002 0

Jeff Franks

HOUSTON: Compaq Computer Corp. shareholders on Wednesday approved
Hewlett-Packard Co.’s nearly $20 billion acquisition of the company in a clear
victory that could pave the way for the computer industry’s largest merger ever.

Unlike the contested battle for HP shareholder votes, in which HP claimed a
narrow victory but opponents have yet to concede defeat, there was no organized
opposition to the merger on the Compaq side. The meeting in a Houston hotel
ended in 45 minutes with the vote won by a ratio of 9 to 1.

Chief executive Michael Capellas told shareholders it was a
"momentous" day. "Both Compaq and HP have long, proud heritages
and, believe me, we are proud of our heritage, but this was about creating the
next generation industry leader," Capellas said. Other than the topic,
there were few similarities to the rancorous meeting Tuesday of HP shareholders.

At that meeting, shareholders booed HP chief executive Carly Fiorina and gave
a standing ovation to dissident board member and shareholder Walter Hewlett, who
waged a four-month battle against the merger. Only a couple of hundred people
attended Compaq’s shareholder meeting, filling half of the conference room at
the Wyndham Hotel in Houston.

The most caustic question from the audience was a request for details about
Capellas’ new salary as president of the combined company. He said terms have
not been discussed yet.

Compaq shares fell 32 cents, or 2.87 percent, to $10.82, closely following
the drop by Hewlett-Packard, which closed off 60 cents, or 3.19 percent, at
$18.20 on the New York Stock Exchange ahead of the Compaq vote.

HP vote tally may take weeks

Since news of the merger was made public on Sept. 3, Compaq shares have
fallen 12.39 percent and HP has fallen 21.59 percent, both underperforming No. 1
computer maker International Business Machines Corp., which rose 5.50 percent in
the same period.

While the Compaq approval moves the merger along, the final results of HP’s
vote on Tuesday in Cupertino, California, may take weeks. HP claimed it won a
narrow majority, but Walter Hewlett said the vote was too close to call.

Hewlett, the son of one of HP’s founders, opposed the merger saying it would
hurt the company’s strong printer division and saddle it with Compaq’s
low-margin PC business. HP’s Fiorina said the combined companies would have more
than $80 billion in revenues and sell everything from PCs to printers to large
computer servers, positioning it to compete with top computer company IBM. HP,
which announced job cuts of 6,000 last year, earned $408 million on revenues of
$45 billion in fiscal 2001.

One shareholder who attended the Compaq meeting said he thought the merger
would be good — for Dell Computer Corp., the No. 1 PC maker. Dell pushed Compaq
out of the top market share spot in mid-2001 through an aggressive price war.

"Right now with the economy starting to pick up and Dell pushing
aggressively to get market share, this would be a bad time to lose focus trying
to do a merger," said Ed Hardin, who owns both Compaq and Dell shares.

"I can’t lose either way because I own a lot of Dell stock," he
added. Another said he worried about the impact on Houston.

Effect on Houston a concern

"I’ve followed Compaq stock up and down for years so I’m a little sad to
see it go," said Compaq shareholder Lane Evans.

"But I am concerned primarily about the merger’s effect on Houston’s
economy. We’ve taken some hard hits lately with Enron and all." Energy
company Enron Corp. collapsed last year.

Compaq, once the largest maker of personal computers in the world, cut 9,500
jobs in 2001 and lost $785 million on revenues of $34 billion. It has been stung
in recent years by top-level executive turnover, its own problematic $9.6
billion buyout of Digital Equipment Corp. in 1998 and competition from Dell.

Shareholders back the deal in part because of the promise it holds for
Compaq’s PC business, which will be vaulted back into the No. 1 market share
position when combined with HP’s. But they question how employees will handle
the restructuring.

HP and Compaq say they have been working for the past six months on planning
the integration of 135,000 employees, devoting 900 employees and 500,000
man-hours to the task. It’ll include cutting 15,000 jobs from the new company.

"What does that do to the morale inside the company and what does that
do to customer decisions?" said Sunil Reddy, a fund manager for Fifth Third
Investment Advisors. "These are some of the risks you have in the near-term
in the next six to 12 months because it’s one thing to have everything mapped
out on paper and it’s another thing to actually execute."

Indeed, Compaq’s Capellas said that one of the challenges he faces is the
size of the new organization. "The real trick is being able to execute this
globally," he said. Capellas also said that it was not clear if the
economic recovery will occur as early as the second half of 2002.

"I’ve heard the rumor the recession is over. It is not quite clear to
all of us," Capellas said. "I think any time the recovery can happen
faster … it’s certainly good news for us," he said. "I’ll take it.
I’ll take it. Bring it on

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