Peter Henderson and Caroline Humer
SAN FRANCISCO/NEW YORK: Computer makers Hewlett-Packard Co. and Compaq
Computer Corp. on Wednesday struck back against criticism from HP heirs and
launched a high profile advertising campaign to rally support for their
controversial merger, the industry's biggest.
Hewlett-Packard chief executive Carly Fiorina and Compaq Chief Executive
Michael Capellas issued their first public and detailed rebuttal to the case
against the merger put forward by Walter Hewlett, a son of founder Bill Hewlett
and a dissident HP board member who has turned against the plan.
"We believe his recent opposition to the merger is based on a static and
narrow view of HP and the industry, selectively ignores the synergies of this
transaction, relies on faulty financial assumptions and analyses, and offers no
alternatives to address HP's challenges and opportunities," they wrote.
Hewlett-Packard published a nearly 50-page presentation for distribution to
investors which laid out in detail its cost saving expectations and showed why
it believes revenue will not fall more than five per cent after the $22.2
billion merger.
It also took out double-page advertisements in the New York Times and the
Wall Street Journal arguing for the benefits of the merger and the need to
"embrace change."
With the shareholder vote not expected before late February, analysts say the
battle is only going to get more intense as both sides try to sway investors to
their sides.
"The only thing that's going to stop this from getting to be the worst
prime-time soap opera in the IT industry ever is if the companies decide to go
to different plans. They either structure a new deal or abandon the deal and go
to Plan B," said Tom Austin, vice president at Gartner Inc., a consultancy.
Deal "definitive"
But the chief financial officers from both companies stuck to their guns.
"It is a definitive deal," Compaq's Jeff Clarke told Reuters in an
interview.
HP's Bob Wayman said there were no plans to change, even though is was
possible. "The terms of the deal were designed to withstand some of the
pressures that one can anticipate in this. It was designed to be a strong
commitment from both companies to proceed," he said in the same interview.
Members of the founding Hewlett and Packard families have united in opposing
the deal and hold 18 percent of HP stock.
Wayman said the rebuttal was not directed at Hewlett, who has led the
opposition to the merger, but at the logic of his argument, which the company
presentation released Wednesday says betrays a "simplistic anti-merger
bias."
"We are not trying to take a shot. We are trying to clarify for
investors what we think is a more rational set of assumptions and analysis that
they should be using in their deliberations," he said.
Hewlett, who sees the deal cutting the value of HP's printer franchise,
bloating the PC division and scaring away clients, has predicted a total 10 per
cent drop in revenue after the merger, double HP's own forecasts.
HP said it expected sales to fall in about half its businesses which are
deemed "at risk," ranging from 5 percent of data storage revenue to 18
per cent of home personal computer sales. Since printers and services are not at
risk, Hewlett's loss assumptions are too high, HP argues.
Lehman Brothers analyst Dan Niles said he had come to favor the merger in the
three months since it was announced.
Some for, some against
"Since that time I kind of see how this thing could work," he said.
"I agree with a lot more of the HP stuff than I do with the Hewlett
stuff." But he said the merger probably would not go through.
Hewlett-Packard and Compaq have yet to show substantial support among major
investors, and Walter Hewlett said market reaction had proved his point.
"Mr. Hewlett has been visiting with investors and has been very well
received. We believe that it is HP that relies on faulty financial assumptions
and analysis," a spokesman said. Gartner's Austin said HP would have been
better served by proving support with its national ad campaign.
"I would really have been a heck of a lot more impressed if this was a
list of the institutional shareholders who had committed to vote for the
deal," he said. Wayman said investors were still making up their minds.
"These institutional investors need to behave responsibly. They do not
have final information. You should not expect them to be giving a view at this
point in time," he said. Hewlett-Packard shares rose 20 cents, or about one
per cent, to $20.70 and Compaq fell 9 cents to $9.02 on the New York Stock
Exchange.
(C) Reuters Limited.