Hewlett family to vote against Compaq merger

In what could be the most vocal objection to the proposed merger between IT giants Hewlett-Packard Co. (HP) and Compaq Computer Corp., the family and trust of HP co-founder William Hewlett said Tuesday that they would vote against the merger if it is put to a vote before stockholders.

Walter B. Hewlett, Eleanor Hewlett Gimon, Mary Hewlett Jaffe, the William R. Hewlett Revocable Trust and the William and Flora Hewlett Foundation would all vote against the merger, Walter B. Hewlett said in a statement. Together, the groups hold more than 100 million shares of HP stock, he said. That would give them about five per cent of the company’s shares. The three individual parties are children of the co-founder and namesake of HP.

HP announced in early September that it intended to acquire rival Compaq in a stock swap that was valued at an estimated US$25 billion based on the companies’ share prices at the time. The deal is expected to close in the first half of 2002, following regulatory approval.

“I believe that Hewlett-Packard can create greater value for stockholders as a stand-alone company than as a company combined with Compaq,” Hewlett said in the statement. Hewlett said that HP’s printer business and a strong foundation for expanding the company’s outsourcing and consulting services business were two of the main reasons to keep the companies from merging.

“Given the lack of stockholder benefits, I believe the extensive integration risks associated with this transaction are not worth taking,” he said in the statement.

Two negative merger effects for HP would be an increased exposure to the PC market, an area which he said is “neither growing nor profitable,” and increased exposure to the lower-end server business, which has historically been less profitable than the high-end server business, Hewlett said.

Hewlett also said the merger would distract HP management and employees from concentrating on areas which the company should be expanding and could also cause customers to delay product orders and purchases, which could have a long-term negative effect on the company’s revenue.

Since the announcement, Hewlett said, Compaq’s business outlook has declined dramatically, making the prospect of benefits from the merger even less likely.

HP issued a statement responding to Hewlett’s comments, in which the company said it regretted the decision of the family, but was not surprised. The board of directors of HP, and both companies remain committed to the merger, and expect shareholder approval, HP said in the statement. The company said it will file its S-4 registration statement, related to the merger, within the next several days.