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Technology
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S&P cuts HP debt rating
HP suffers hiccup after scoring two victories; debt rating lowered to "A-minus."
March 7, 2002: 11:37 a.m. ET

graphic NEW YORK (CNN/Money) - After scoring two victories in its bid to acquire Compaq Computer Corp., Hewlett-Packard Co. suffered a hiccup Thursday when its debt rating was downgraded.

Standard & Poor's lowered HP's senior unsecured debt to "A-minus," its fourth lowest investment grade, and dropped the company's short-term debt to "A-2" from "A-1 plus." HP also remains on "creditwatch" with negative implications due to the still uncertain outcome of its shareholder vote on the Compaq merger.

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The downgrade comes after the $22 billion merger of HP (HWP: down $0.29 to $19.89, Research, Estimates) and Compaq secured approval from the Federal Trade Commission Wednesday. The transaction also received the backing of key proxy advisory firm Institutional Shareholder Services earlier this week. Institutional shareholders control a key block -- 23 percent -- of HP's stock.

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The merger of HP and Compaq has faced considerable opposition since being announced in September. HP shareholders are set to vote on the merger March 19 and Compaq (CPQ: up $0.02 to $11.00, Research, Estimates) shareholders will vote a day later.

S&P said Thursday that it recognizes the strategic validity of the HP-Compaq merger but that the operation and execution risks posed by the transaction offset the positive implications.

"While the merger offers the scale and market positions in hardware that could lead to greatly improved profitability, the execution risks are significant," said Standard & Poor's credit analyst Martha Toll-Reed.

Compaq's rating also remains on "creditwatch" but with developing implications, which means the company's rating could be revised upward or downward, S&P said Thursday. graphic

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