With deal closed, countdown to new HP begins

With the legal closing Friday of its Compaq Computer Corp. acquisition, and a turbulent nine months behind it, Hewlett-Packard Co. is at last poised to commence merged operations.

Compaq’s run on the New York Stock Exchange as an independent company is ending. Before trading opens Monday, Compaq’s ticker (CPQ) will be suspended, and HP’s will convert from HWP to HPQ, a gesture HP chairwoman and chief executive officer (CEO) Carly Fiorina said is intended as a tribute to the contributions of both companies in forming the new HP.

HP has scheduled customer, media and analyst briefings for Tuesday, the official launch of the newly merged company, according to spokeswoman Rebeca Robboy. Day One – as HP refers to it – will bring some of the information customers and employees have been craving during the drawn-out acquisition approval process, she said. Product roadmaps and branding plans are among the first items on the communication agenda.

HP and Compaq claim to have dedicated some 1 million working hours to integration planning – a thoroughness that’s likely to pay off in the most well-organized transition plan in IT merger history, according to Gartner Inc. analyst Paul McGuckin.

But customers could be in for some shocks once HP’s product plans become clear. McGuckin anticipates that HP will use the acquisition as an opportunity for “radical housecleaning,” along with the expected killing off of redundant product lines.

Particularly at risk are Compaq’s OpenVMS and Tru64 Unix software and HP’s Netaction infrastructure software, McGuckin said in a recent research note.

Buyers can best take advantage of the instability by negotiating steep discounts as HP seeks to demonstrate its strength by winning new business and retaining old customers at nearly any cost, McGuckin said. He also expects further price cuts on high-end storage and servers, as HP and other vendors fight for market share.

“The one clear winner in all of this is IBM (Corp.),” said Illuminata Inc. analyst Jonathan Eunice. “IBM appears to be doing better and better because they are so damn stable.”

While a depressed economy has kept customers from fleeing HP and Compaq since the merger was announced, Big Blue’s steadiness is likely to help it win new customers as business picks up, Eunice said.

Amassing the heft to compete against IBM was an acquisition rationale often cited by HP executives, but HP is still far from that goal, Eunice said. What the acquisition will more likely succeed at is giving HP the bulk to better dictate its own terms in working with suppliers and partners such as Microsoft Corp., Oracle Corp. and Intel Corp., he said.

“The real threat is no longer letting those incredibly powerful suppliers drive a truck through the middle,” Eunice said. “In the old days, if HP didn’t go the way Microsoft wanted, they would say, ‘That’s fine. Compaq will do it for us.’ Many strategic suppliers could indeed leverage the two companies against each other. Now they won’t be able to.”

That’s good news in the long run for customers, but for the next few months, Eunice anticipates more confusion and waiting.

“How quickly (HP) will announce roadmaps is an open question,” he said. “These are very complicated, complex product lines.”

Also still in limbo will be HP’s employees, who have since September been jittery about the company’s announced plans to cut 15,000 people from the combined company. While announcing product and branding plans is a top priority, personnel decisions will come gradually throughout the next year, according to HP.

Customer-facing organizations, such as sales and support, will be the first to be reorganized, HP said in an early April regulatory filing. Other units will be streamlined through a process HP calls “adopt and go”: Teams selected for retention will be plugged as nearly complete entities into the new HP, while others will be jettisoned entirely.

One survivor of the acquisition process – despite what at times seemed very long odds – is Fiorina. With many analysts predicting she would leave HP if the acquisition was defeated, Fiorina has won several more years as HP’s leader and time to prove her bold move was the right one.

“She teetered really, really, really close to just being disrespected everywhere,” Eunice said. “But so did Lou Gerstner in his early days at IBM. If she’s successful, it’s a new model.”

A few legal odds and ends remain from the contentious acquisition process. A federal court vindicated HP executives on proxy fight leader Walter Hewlett’s charge that HP coerced at least one institutional shareholder to vote with management on the deal. But some evidence brought to light after HP’s shareholder vote – such as Fiorina’s infamous leaked voice mail message and Compaq CEO Michael Capellas’ handwritten note expressing doubt about the merged HP’s prospects — is unlikely to quickly fade from investors’ minds.

The new HP will continue facing close scrutiny from shareholders, one of whom has a complaint seeking class-action status pending in Delaware court, and from federal overseers. The U.S. Attorney’s Office for the Southern District of New York and the U.S. Securities and Exchange Commission’s San Francisco office both requested information from HP in mid-April relating to Hewlett’s allegations, though neither appears likely to take further action now that those allegations have been rejected by a judge. Representatives from both offices declined to comment on the current status of their inquiries. As the new HP becomes an operational reality, the company will begin tackling the daunting challenge of defying the odds and turning the biggest merger in IT history into one of the few that succeeds.