HP: “There is no thinking of calling off the merger”

Hewlett-Packard Co. went on the defensive Wednesday to shore up support for its proposed US$25 billion merger with Compaq Computer Corp.

The counter-attack came in the wake of rising speculation in the industry that the two companies will fail to execute their plan to merge. The families of both of HP’s co-founders have issued negative statements about the deal, and late last week the David and Lucille Packard Foundation, which holds approximately 12 per cent of the shares, said it would oppose it when a vote comes.

In a hastily-arranged conference call with the media, HP’s business customer organization president Webb McKinney tried to dispell what he called misperceptions among the two companies’ customers and shareholders.

“There is no thinking of calling off the merger,” he said. “The benefits to shareholders and customers are enormous.”

HP needs at least 50 per cent of the shareholder votes to approve the deal, and 82 per cent of them have not made preliminary statements, he added. “The Packard Foundation is a charitable organization and does not match the rest of the shareholder base,” he said.

McKinney said he holds a weekly meeting on Wednesdays with his Compaq counterpart, Jim Clark, in addition to a half-day meeting once a week with HP chief executive Carly Fiorina and Compaq chairman Michael Capellas. McKinney said the two companies have already formed what would be the leadership team of the so-called “New HP,” which includes executives for all its major business units as well as teams focused on activities that cut across these areas like supply chain and go-to-market strategies. No specific names were mentioned, however. No one from Compaq spoke on the conference call.

McKinney said too many people have criticized the proposed merger, which was announced Sept. 4, as a marriage between two PC companies. HP and Compaq, he said, see more opportunity in the services business. But customers and analysts say the services organizations would be more of a support-oriented operation and not an entity which would effectively compete with the likes of IBM.

“Support is a very good business and it’s very important to customers,” said McKinney. “High-quality support is increasingly at the top of their list. It’s a profitable business and an annuity business.”

Gary Barnett, an analyst within the technology practice at London-based Ovum, said he worked at Unisys when it was formed by a merger between Burroughs and Sperry Gyroscope Co. in 1986. That experience, he said, taught him that organizational differences can play a huge role in how successful a merger will be.

“There are obvious cultural differences that are going to be tough,” he said.

McKinney dismissed that notion. “People talk about HP as having a monolithic culture, but the culture in the personal business is different than the services business,” he said. “In the integration team, I’ve referred to us as the cultural astronauts. At the core, the value sense of the companies are quite similar. I don’t want to give you the impression that we have no work to do . . . but there are no significant problematic issues.”

Barnett admitted that HP’s spin-off of Agilent Technologies and Compaq’s merger with Digital Equipment Corp. in 1998 have given the two firms some important experience.

“Compaq has shown a fair amount of maturity in the way it has handled the Digital legacy,” he said. “As an ex-DEC user myself, I can tell you we tend to be a fairly committed bunch.”

McKinney said HP will continue to work with regulatory agencies like the U.S. Federal Trade Commission and European Union while meeting with individual shareholders and customers to discuss the merger. A vote date, he said, will not come until February at the earliest.

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