NEW YORK: Computer and printer maker Hewlett-Packard sought to reinforce the
case for its $25 billion bid for Compaq Computer Corp. in a filing with the US
Securities and Exchange Commission, saying the deal would add between $5 and $9
a share, The Wall Street Journal reported on Tuesday.
The Palo Alto, Calif. company, which is in the midst of a boardroom tussle
over the acquisition of rival Compaq, said it had agreed to pay more than $575
million in bonuses to over 6,000 Hewlett and Compaq workers if they stayed with
the new company for a year, the newspaper said in its online edition.
"The merger represents the single best strategic alternative for our
respective companies and is the strategy most likely to deliver increased value
to our respective shareholders," it quoted the filing as saying. Both
companies looked at "numerous alternative strategies" before deciding
to merge, HP said, according to the newspaper.
Compaq and Hewlett-Packard are trying to convince shareholders to back their
proposed merger, announced on September 4. Meanwhile, Walter Hewlett, the son of
the company's founder -- and owner of about six per cent of Hewlett-Packard --
is talking to shareholders about voting against the plan, arguing that it would
hurt stockholder value.
The chances of the merger going through diminished in December when family
members of the founders, who own a combined 18 per cent stake, said they would
vote against it.
Hewlett has said that HP management had negotiated a contract that required
unanimous board approval and that he had been advised by the company's lawyers
that he could vote for the merger in his capacity as a director, while opposing
it as a shareholder.
The newspaper said that HP's estimate of the per-share value stems from an
estimated $2.5 billion in 2004 annual cost savings. Hewlett-Packard estimates
that about 50 per cent of the savings will come from cutting duplicate
administrative and technology costs and because the joined companies will be
able to buy in large quantities, it added.
The company said that revenues would shrink by as much as five per cent, or
$4.1 billion a year, as the companies join units and cut some product lines, the
newspaper said. HP thinks this could cut earnings by $500 million and net
savings to $2 billion, or 48 cents a share. The 48 cents would be valued at $5
to $9 a share today, the paper said.
The calculation is based on the typical range investors are willing to pay
for $1 of HP earnings, it added. Walter Hewlett and company spokespeople could
not be immediately reached for comment.
(C) Reuters Limited.