HP exec says Compaq merger a go

Despite strong resistance in some quarters to its merger with Compaq Computer Corp., a senior Hewlett-Packard Co. official said Wednesday that the merger preparations will continue as planned, and that they expect to secure enough shareholder support to push the deal through.

“Despite the tendency for some people to declare the (merger) process is over and done with, the truth is that we are in the very early stages of the process,” Webb McKinney, president of HP’s business customer organization and head of the HP-Compaq integration team, said during a conference call. “Eighty-two per cent of share-owners have not made preliminary statements as to how they might vote.”

The proposed multibillion-dollar deal has come under increased scrutiny after the David and Lucile Packard Foundation said last week that it planned to oppose the merger when it goes to a shareholder vote, which is expected to happen early next year. The foundation holds a 10.4 per cent stake in HP, and joined Hewlett family members and other organizations that have already voiced opposition to the deal. Together, these opponents hold about 18 percent in total of HP’s outstanding shares.

HP’s McKinney said both companies plan to continue with the merger despite the objections from the Hewlett and Packard families.

“Both boards have reiterated their full support for the merger,” McKinney said. “There is no thinking of calling the merger off.”

McKinney charged that too much emphasis has been placed on the two companies’ PC businesses and how they would fit together. HP draws a large chunk of its revenue from the sale of printing and imaging products, and some critics of the deal have said that the low-margin PC market would dilute profits from that part of its business.

The merger really revolves around benefits the companies could gain by combining their high-end server business, as well as their software and services efforts, McKinney said.

The two firms are working to resolve concerns among users about which products will continue to be supported after the merger, and how the combined company will take care of its shared customers, McKinney said.

Still, some users have said that at the top of their list of concerns is uncertainty about whether or not the deal will go ahead.

“From a user’s perspective the worst part of the merger, at the moment, is the uncertainty the merger will actually take place,” said Kees denHartigh, systems and network analyst at the University of Alberta, in a recent interview. “With the deal being on shaky ground, there seems to be a loss of confidence with both HP and Compaq.”

Other users have contested the assertion from HP and Compaq officials that Michael Capellas, chairman and chief executive officer at Compaq, brings valuable experience to the merger from his company’s past acquisition of Digital Equipment Corp.

“That deal was a problem to a lot of customers,” Jean Norton, president of Sysnet Staffing Inc., said recently. “The integration between the two very different companies was a challenge. Compaq had a lot to learn, and the learning was slow.”

Compaq, in Houston, is at http://www.compaq.com/.

HP, in Palo Alto, Calif., is at http://www.hp.com/.

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