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2/27/2002
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HP's Stump Speech: Merger Will Succeed, And Here's How

Technology is helping HP and Compaq teams plan the merger, which won't result in an immediate discontinuation of some product lines.

With a vote on the Hewlett-Packard/Compaq merger just around the corner, HP CEO Carly Fiorina and other company execs held a meeting with securities analysts Wednesday to emphasize the benefits of the deal, assure IT execs that important product lines won't be immediately discontinued, and explain how technology is helping them prepare for the challenging task of bringing the two companies together.

One of the charges brought by opponents of the merger is that, historically, large mergers in the computing industry don't work. But HP says that it and Compaq have dedicated 600 employees to making sure they're the exception to the rule. This group is analyzing everything from corporate culture to technologies in order to map out an integration plan for the businesses and business processes, and software is the backbone of their efforts. The integration team is using Web-based collaboration and information-management software from eRoom Technology Inc., called eRoom, to record and store data about the integration on topics ranging from corporate branding to enterprise systems to finance to HP Labs and human resources.

Still, says Toni Sacconaghi Jr., senior research analyst with Sanford C. Bernstein & Co., the merger remains a giant risk: Time and again, Sacconaghi says, it's been shown that "big mergers don't always go according to plan," no matter how well the companies plan them out.

HP admits there will be some short-term negatives. The vendor expects to achieve $2.5 billion in cost savings by 2004 by eliminating duplicate IT systems as well as research and development teams and other employees. But it anticipates an overall 4.9% dip in revenue pending completion of the merger, because of its commitment to supporting overlapping product lines for an unspecified amount of time. HP rejected the idea of immediately discontinuing any product lines or spinning off segments of its business--including its digital imaging business--should the deal be approved. "The fallacy is that the day after the announcement the products go away," says Duane Zitzner, president of HP computing. Zitzner says that any plans to discontinue product lines will be "well-thought-through with customers and developers in mind. We can't just stop rolling out products."

Fiorina also reacted to recent claims by dissident HP board member Walter Hewlett that she and Compaq CEO Michael Capellas have ulterior motives for seeing the deal approved, because they stand to receive compensation packages worth more than $115 million. "Shareholders have every right to know every detail about employee compensation, but we can't disclose what hasn't been decided," she said. A newly formed executive compensation committee of the new board of directors will determine compensation for employees of the merged companies, Fiorina said.

Fiorina said that if shareholders decide not to support the deal, HP will consider other alternatives--but she wouldn't specify what those are. Fiorina said she and her team are convinced the deal with Compaq "is the best alternative for us to achieve market leadership, improved cash flow, and accretion to shareholders."

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