HP, Compaq, address customer concerns over merger

Hewlett-Packard Co. and Compaq Computer Corp. are using the last week before shareholders vote on their proposed merger to clear up concerns, including those of CIOs who

are uncertain whether they should support the deal.

As the March 19 shareholder meeting gets closer, opposing camps are forming that make it difficult to assess whether or nor the $$22 billion merger will go through. The Federal Trade announced its approval of the merger last week, but by no means does it make it a fait accompli. On the one hand, influential advisory firm Institutional Shareholder Services released a report last week recommending the deal to its clients. On the other, a major pension fund has decided to vote against it and a survey of North American and European CIOs Monday from Merrill Lynch revealed a great deal of dissent and indecision.

Webb McKinney, president of HP’s Business Customer Organization and HP merger integration team lead, said the two companies began speaking with customers in the first few weeks after the deal was announced in September. Those discussions helped the integration team come up with about 10 principles that are guiding its strategy.

“”We were sort of getting our PhDs in the critical success factors in large mergers,”” he said.

The principles include a focus on core product roadmaps, Day 1 readiness, employee retention and defining the governance of the new company. But it is an unyielding focus on the customer that will make or break the success of the merged company, McKinney said. “”That should have been first (on the list),”” he said.

CIOs told the Merrill Lynch study they would reduce spending on Compaq equipment by 10 per cent, and HP products by four per cent if the merger is successful. The greatest opposition came from the Compaq side: 76 per cent of Compaq customers were either against the deal or undecided.

Jeff Clarke, CFO and Compaq merger integration team lead, said that it was important to note the two firm’s strong independent performance in the market over the past six months. That strength would not fade once the two firms were working together, he said.

“”Some of the uncertainty is because there are overlaps,”” he said. “”Because we can’t disclose the final product roadmaps or some of the ways that we will sell the products — the go-to-market structure — there is some uncertainty out there.””

“”I talk to customers. What I hear them saying is that they’re really pleased with how we’ve stayed focused on them during this planning period,”” said McKinney. “”I do have confidence that when we show them those plans and begin to work with them in their own individual migrations that they will have high confidence.””

HP and Compaq have put approximately 900 people, or about half a per cent of their combined workforce, on the integration team full time. Lead managers typically gather on Monday to talk about new issues that have come up, McKinney said. Tuesday is spent trying to resolve those issues and Wednesday is spent reviewing status and providing guidance. Thursday is reserved for a meeting with the steering committee, which includes HP chief executive Carly Fiorina and Compaq chief executive Michael Capellas.

McKinney and Clarke said the two companies have already established one best practice that is being used to merge the two companies. Dubbed “”adopt and go,”” it refers to the way teams come together and figure out which company has the best capability for a given issue. “”The alternative to . . . is to try and create something new in every part of the company,”” McKinney said. “”That creates a lot of complexity, slows down the process and makes things unnecessarily difficult.””

The firms have also created an “”eRoom”” on the HP intranet which stores all secure information on planning. Almost 3,000 folders and 10,000 files have been filling up the eRoom so far, with about 3GB of server space of information.

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