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HP, Compaq dissent grows
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November 7, 2001: 4:18 p.m. ET
Founders' descendents say they will not support proposed combination.
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NEW YORK (CNNmoney) - Shares of Hewlett-Packard and Compaq weakened on Wednesday as support for their proposed $18.4 billion merger deal continued to deteriorate.
David Woodley Packard, the son of HP co-founder David Packard, voiced his opposition to HP's decision to acquire Compaq, saying in a statement that he had been skeptical for some time of current management's "confidence that it can aggressively reinvent HP culture overnight - a culture that was developed over many years and was thoroughly tested under all kinds of business conditions."
Packard's dissent came a day after Walter Hewlett, the son of HP co-founder William Hewlett, and his siblings said they would try to block the deal.
Packard said the Packard Humanities Institute, of which he is chairman and which owns 25 million HP shares, or 1 percent of the company, will likely vote against the transaction when it is put to shareholders.
A separate Packard foundation, the David and Lucile Packard Foundation, has a stake of more than 10 percent in HP. It said that it had not yet decided how it would vote.
The Hewlett family owns a roughly 8 percent stake in HP.
The concerns of the HP founders' descendents echo those expressed by many industry analysts. They say they are worried that the deal would increase the company's exposure to the flagging PC industry; increase its exposure to the low-end server business; and jeopardize its strong position in the printing and imaging business.
In his statement, Packard also said he was concerned about the number of layoffs - which he estimated at "at least 15,000" -- such a union would likely entail.
"I am perfectly aware that HP has never guaranteed absolute tenure status to its employees; but I also know that Bill and Dave never developed a premeditated business strategy that treated HP employees as expendable," Packard said.
Last month, Matrix Asset Advisors, a major shareholder of both HP and Compaq, urged the two companies to abandon the merger plan, warning that the risks associated with integrating multiple products and business lines, diverse sales force and sales channels outweigh the potential benefits.
Lehman Brothers analyst Dan Niles on Wednesday said the deal now stands about a 50-50 chance of going through as currently proposed.
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He also said that its success or failure also could mark the ultimate success or failure of HP Chairman and CEO Carly Fiorina, who last year abandoned an ambitious plan to buy the global management and technology consulting business of PricewaterhouseCoopers for as much as $18 billion.
"If the shareholders vote against this deal, it is hard to see how she will remain," Niles said in a note to clients Wednesday. "In our opinion, the only beneficiaries to the current increase in uncertainty are Dell and IBM."
In spite of the growing dissent, the board of directors of Hewlett-Packard Wednesday reaffirmed its support for the merger and for Fiorina. In a statement, the board said all its members, except for Walter Hewlett, have reaffirmed their support for the deal.
"Today, I'm even more convinced of the power of this combination, particularly given the progress of our integration plans," said a statement from HP board member Dick Hackborn, a former chairman and executive vice president of HP.
Compaq's board of directors also reaffirmed its support for the merger Wednesday.
"The combination of these two great companies will create an even stronger market and technology leader," the board said in a statement. "The board is more convinced than ever that the merger serves the best interests of shareholders, customers, partners and employees."
Shares of HP (HWP: down $0.63 to $19.18, Research, Estimates) fell about 4 percent Wednesday. Shares of Compaq (CPQ: down $0.51 to $7.99, Research, Estimates) finished more than 5.8 percent lower. 
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