Gut-check time for HP/Compaq
With less than three weeks to go until the merger vote, shareholders have to look past the numbers.
February 27, 2002: 6:21 p.m. ET
By Adam Lashinsky
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NEW YORK (CNN/Money) - If the HP-Compaq merger were a political campaign, voters would be able to see some reliable polling data three weeks before election day.
But this isn't a vote for political office. It's a proxy fight. And a bitter one, pitting HP management and its board against Walter Hewlett, son of the one of the company's founders and a board member himself.
And with the HP shareholder vote scheduled for March 19, it's no easier to guess the outcome today than it was several months ago. We still know that the 18 percent of the shares represented by the Hewlett and Packard foundations plans to vote against HP's acquisition of Compaq. We also know that an additional 2 percent of institutional investors have signaled their intention to oppose the deal and another 2 percent support it.
That leaves the remaining 78 percent of HP's shareholders who've yet to be heard from. About a fourth of HP's shareholders are individual investors.
Little to go on
Unfortunately for shareholders looking for enlightenment, there was precious little at HP's analyst meeting on Wednesday. The company gathered its largest investors into one room and proceeded to tell them all exactly what they've been telling them for months: HP will be stronger with Compaq's businesses added to the fold, the merger reflects a carefully considered strategy, and Walter Hewlett is trying to distract shareholders with misinformation.
One enduring casualty of this deal has been the numbers, which have been manipulated to suit either side's arguments. Walter Hewlett, for example, asserts that HP without Compaq would be worth $14-to-$17 per share more within 18 months. HP isn't buying it: "He invents $14-to-$17 of so-called value by manipulating earnings projections and inventing stock multiples," the company said in a statement.
How true. Of course, that's what investment bankers do. They make assumptions about growth and values and then extrapolate. HP's bankers, Goldman Sachs, have done exactly what Walter Hewlett's advisers, Friedman Fleischer & Lowe, have done.
In other ways, HP has done its share of spinning the numbers. Chief Financial Officer Robert Wayman said on Wednesday that HP had suffered less revenue loss since the merger was announced in September than critics might have expected. Revenue for HP and Compaq in the last quarter was 98 percent and 97 percent, respectively, of what analysts originally had forecasted. The average for competitors was just 86 percent, he said.
Of course the real test is what will happen after the merger.
HP CEO Carly Fiorina repeatedly said Wednesday that approving the deal comes down to four issues: making HP a market leader, improving profitability and cash flow, implementing a deliberate strategy crafted by HP's board, and assessing HP's ability to execute.
At this point, investors know all the numbers they're going to know. Now it comes down to their gut feel about Fiorina and her leadership -- basically, can she pull off what she's promising?
Send e-mail to Adam at adam_lashinsky@timeinc.com.
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