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Hewlett Family Opposes Compaq Merger
 11/06/2001 NEW YORK/SAN FRANCISCO (Reuters) - Hewlett-Packard Co.'s plan to take over Compaq Computer Corp. and create a technology and services powerhouse was dealt a severe blow on Tuesday when the founding Hewlett family said they would vote against the deal. Hewlett-Packard shares jumped and Compaq shares fell on expectations of the death of the merger, which has been panned by Wall Street and questioned by investors. The Hewletts do not have a decisive vote after selling all but a 5 percent stake in the Palo Alto, California-based company, but they wield enormous influence, investors said. Both companies said their boards of directors remained committed to the $21-billion acquisition, which would create a computer, printer and services powerhouse to rival technology industry leader International Business Machines Corp.(NYSE:IBM - news) The unraveling of the deal would also threaten the future of Hewlett-Packard Chief Executive Carly Fiorina, who has relentlessly campaigned for the deal and staked her reputation on it. Walter Hewlett, son of co-founder William Hewlett, said buying Compaq would increase HP's share of the low profit margin personal computer market, dilute the importance of its lucrative printing franchise, and risk its customers. ``With this transaction we get what we don't want, we jeopardize what we now have and we compromise our ability to get what we need,'' he told Reuters. Members of the Packard family were silent, while a spokeswoman for the David and Lucile Packard Foundation, which owned about 10 percent of the HP as of the end of last year, said, ``the foundation will be doing an independent analysis''. Fiorina has fended off merger opponents for two months, saying that the deal's payoff was in growing the services organization and high-end computers rather than PCs. But she had not faced such high-profile opposition to the deal before the Hewlett family objected in public. ``The name is much more important than the actual block (of stock) they have,'' said Roy Papp, managing director of L. Roy Papp & Associates, which has about 900,000 shares of HP. ``This may be the first step in the deal not getting done,'' said Kevin McCloskey, manager of the $3.5 billion Federated American Leaders Fund, who said the merger's chances were falling. ``I would say it is definitely less than 50-50.'' The deal's ``spread'' -- or the difference between where Compaq's shares are trading and the higher value the merger places on them -- ballooned to more than 47 percent after the family's announcement. Deals viewed as safe bets to close will typically trade in the 8 percent to 10 percent range. FIORINA'S FAILURE -- OR LEGACY Walter Hewlett had reported at the end of last year having sold 229 million shares, leaving him roughly 150 million, according to Thomson Financial/First Call. On Tuesday he said he and family members owned more than 100 million shares, suggesting a further decline in the family's stake. ``The Hewletts see the patrimony of the family being totally torn apart,'' said Frank Dzubeck, principal with Communications Network Architects in Washington, D.C. and a technology management industry consultant. But Bear Stearns analyst Andrew Neff, pointing to Hewlett's small stake, said he believed management could still clinch the merger, despite a tougher fight. Shares of Hewlett-Packard jumped 17 percent to $19.81. Compaq shares fell 5.45 percent to $8.50. The value of the proposed deal had recovered to $21.2 billion as of Tuesday, down from $24.9 billion when it was first announced but up from late September in line with gains in Hewlett-Packard shares and the broad market. Walter Hewlett said he has not talked to any other shareholders about opposing the deal and declined to comment on whether he planned to do so in the coming weeks. He also declined to comment on the future of Fiorina. Some shareholders said Fiorina would be in trouble if the Compaq deal failed. Her 2-year tenure has been rough as she has tried to restructure the old Silicon Valley firm often accused of being slow-moving and bureaucratic. Last year Fiorina also tried to broker a deal to buy consultant PricewaterhouseCoopers, but talks broke off. ``Our best guess would be if this deal were to come undone, the Hewlett board would have to look for a new leader and we think that would be very well received by Wall Street,'' said David Katz, chief investment officer of Matrix Asset Advisors, which had asked the companies to call off the merger. ``I think the company's success will be my legacy,'' Fiorina herself told Reuters last month. ``The company's failure will be my failure, with all the predictable consequences of that.'' News Archive | |
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