News > Deals
HP to take merger to shareholders
graphic December 11, 2001: 3:00 p.m. ET

CEO expects tough times ahead for merger, still thinks HP-Compaq merger can succeed
graphic graphic
graphic       graphic
  • Compaq shares down 13% - Dec. 10, 2001
  • HP shareholder nixes Compaq merger - Dec. 7, 2001
    NEW YORK (CNN/Money) - Hewlett Packard Co. still plans to proceed with its $25 billion takeover and will present the transaction to shareholders, CEO Carly Fiorina said in a memo released Tuesday.

    Fiorina expects times to get tough for the computer company in the coming months head.

    "Despite the decision by the Packard Foundation and the earlier actions by Walter Hewlett and David Woodley Packard, we intend to stay the course and pursue a successful shareowner vote," Fiorina said.

    Last Friday, a key shareholder dealt the $25 billion HP-Compaq merger a significant blow when it made a preliminary decision to vote against the transaction. The David and Lucille Packard Foundation, which owns more than 10 percent of HP's shares, surprised many with its decision and sent both companies into turmoil.

    Other heirs of the founding Hewlett and Packard families also are opposed to the merger. Combined, the Packard Foundation and the heirs hold roughly 19 percent of HP shares, setting a near insurmountable block to the merger.

    The HP takeover now needs approval of 67 percent of HP's institutional shareholders for the merger to succeed, analysts said.

    But Fiorina thinks the merger can still succeed.

    "We only need a simple majority of shares voted for the deal to be approved by our shareowners -- which include holdings by many large institutional firms --and we believe this is achievable. This is a long process and we are only in the early stages," she said in the memo.

    Compaq also thinks it still can complete the merger. "If you cut the numbers, the deal is still doable," a spokesman said. "You can still do it. We are moving forward and still fully support the merger."

    Shares of Hewlett-Packard (HWP: down $1.01 to $21.99, Research, Estimates) dropped more than 4 percent. Compaq (CPQ: down $0.21 to $9.49, Research, Estimates) shed more than 2 percent Tuesday, after falling almost 14 percent Monday on doubt that the HP takeover would succeed.

    For its part, Compaq Computer Corp. is beginning to consider a future without Hewlett-Packard now that its merger with HP appears in jeopardy.

    Compaq CEO Michael Capellas, speaking at Internet World in New York Tuesday, said it was normal to have a "plan b" in case the merger fails. The Compaq CEO, who reaffirmed his commitment to HP takeover, said having an ongoing business plan is "responsible," a company spokesman confirmed.

    Houston-based Compaq continues to believe its merger with HP is in the best interest of its shareholders, employees, customers and partners, Capellas said in a memo to staff last Friday.

    Compaq's responsibility now is to maintain a pragmatic view of its business and a clear focus on the future. Compaq went into the HP transaction with three objectives: extend its enterprise capabilities across products, software and solutions; achieve critical mass in global business services; and, improving the economics of its PC business.

    The goals were part of Compaq's execution plan set in June and the company's strategy has not changed, Capellas said in the memo.

    "But regardless of the circumstances - whether we are part of the new HP or a standalone company - I am confident in our ability to achieve these objectives," he said.

    Compaq will focus on meeting its goals for the quarter and continuing to concentrate on customer services.

    Compaq and HP have yet to set the date for their shareholder votes. However, the companies plan to file their final proxy in late January, which will set the stage for the vote sometime in late February or early March, a source with knowledge of the situation said.

    The companies expect to complete discussions with the Federal Trade Commission and European Commission sometime in the first quarter and complete the takeover sometime in the first half of 2002.

    However, analysts think the chance of the deal making it before shareholders is slim. If either party unilaterally withdraws from the merger it will have to pay a $675 million break-up fee.

    Some also think the preliminary decision of the Packard Foundation could lead the companies to restructure the merger to appease shareholders.

    "The terms and conditions and structure of the deal have not changed and we are not considering changing it," the Compaq spokesman said. graphic


    Compaq shares down 13% - Dec. 10, 2001

    HP shareholder nixes Compaq merger - Dec. 7, 2001