This is, as a Compaq director put it, "a battle for HP’s soul".
And what a battle it has been! A roller coaster ride that ran through the entire
gamut of soap opera emotions–surprise, anger, confusion; two protagonists
fighting it out in public with their own bands of dedicated supporters, a nail
biting vote and then, the anti-climax. The ride, it seems, is not quite over
yet.
On March 20, an hour after HP shareholders voted on the proposed $20-billion
merger with Compaq, CEO Carly Fiorina declared that based on an estimate of the
proxies, the merger had been approved by a "slim, but decisive"
margin. But Walter Hewlett, dissident director and the merger’s most vocal
opponent, wasn’t throwing the towel in yet. In his statement, he said the vote
was still "too close to call". The upshot: HP employees, investors,
and those watching the merger closely will have to wait the two to four weeks
required to count all the proxies. Even then, word is that a re-count may delay
the process further if the vote is too close. Whew!
The politics of business
In many ways, this has been the most political of business mergers in recent
times. In scenes reminiscent of the presidential polls in the United States,
Carly Fiorina made the rounds of investor and analyst meets for six months
before the vote, doing a hardsell on why the merger makes sense for both
companies. While Walter Hewlett–described derisively by HP as "an
academician and a musician"–ran a surprisingly good media campaign on why
it wasn’t.
Yet, they both came to Flint Center, hopeful though not sure, of which way
shareholders would go. Hewlett received a star’s rousing welcome when he
arrived, while Carly got booed at when she said in her short speech just prior
to voting, that most HP employees ‘approved of’ the merger.
Notwithstanding the emotional overtones to the vote, the fact that it was
such a close call is indicative of a few things. One, that despite the
high-powered and vocal campaigns, neither party was able to decisively convince
shareholders of the merits or demerits of the merger. And two, that the field
remains open on the questions that first arose in September when the merger was
announced.
Is it really a good idea to increase HP’s exposure to the increasingly
commoditized PC business where Dell is giving everyone a beating? Or will the
increased size actually improve economies of scale and give the new HP a better
shot at fighting Dell’s price wars? Can the expected cost savings of $2.4
billion by 2004 really offset revenue leakage that always follows big mergers?
Can the company compensate for the loss of employee morale that the announced
15,000 layoffs will cause? How quick will the integration be and can it really
be carried out smoothly across 103 different locations? If the company is really
looking to expand its services and consulting offerings, is Compaq really the
company to buy? Compaq shareholders, meanwhile, have made no bones about the
fact that they are ready to be bought over.
What next?
Other things are clearer though. No announcements have been made so far, but
in the last few months, product lines that are likely to come under the axe are
becoming increasingly apparent: products from HP’s Windows server business,
some of Compaq’s Unix servers, HP’s corporate PCs and Compaq’s home PCs,
to name a few.
Not that this exercise is not without its own problems–one issue is dealing
with severe lobbying from both sides for retaining some product lines, Compaq’s
Alpha-based Unix servers, for example. The second, more important issue will be
successfully shifting customers over to existing product lines and, thereby,
preventing a steep fall in revenues from products that are chopped off.
However, these are problems that will be addressed and solved one way or
another once the merger goes through.
The far more important question is–what has the bitterness of this vote
done to HP, irrespective of what the final outcome is? Consensus–the
quintessential part of the famed ‘HP Way’ has already taken a beating.
Bitterness and anger already run through the ranks and were overwhelmingly
apparent at Flint Center.
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If the merger goes through, Fiorina will not only have to start delivering on
her promises quickly, she will also have win back employees and shareholders
alienated by the vote. In the unlikely event of the merger not going through,
the company will have to start afresh on chalking out strategies in the
post-vote world. Either way, it’s a tough road ahead.
Sarita Rani in Bangalore