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Compaq Deal No Good, Says Hewlett Family

The rejection could jeopardize the proposed $25 billion deal.
Hewlett-Packard has another thorn in its side to worry: A coalition of Hewlett family members say they will vote against HP's proposed $24.87 billion buyout of Compaq. While the Hewlett family controls more than 5% of HP's stock, its decision is not a mortal wound for the deal, according to analysts.

HP CEO Carly Fiorina has faced a lot of hurdles in her bid to buy Compaq, says Gartner analyst Eric Rocco. But, he says, "both companies would be hurt significantly if this doesn't work. Nobody likes to call off a wedding."

Following the Hewlett family statement, HP issued a statement of its own, indicating that, while it regrets the decision, the company was "not surprised." HP says its board, as well as HP and Compaq management, remain committed to the merger and expect shareholder approval.

Both HP and Compaq have struggled this year to sell hardware at a time when their customers are struggling to keep their businesses above water. Rocco says an argument can be made that this is both the best and the worst time for HP and Compaq to come together. A combined HP and Compaq would emerge as the largest contender in a number of IT segments, including the robust services market. "Technology spending goes to mainstay companies in times of recession, particularly in the areas of product support and outsourcing," he says. Still, Rocco says, HP has yet to articulate a clear direction or strategy for the newly combined company, in part, because of a regulatory quiet period.

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