Advertisment

It’s a Vote!

author-image
DQI Bureau
New Update

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.

Advertisment

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.

Advertisment

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.

Advertisment

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.

Advertisment
Lead-up to the March 19 Vote
September

2001
Plans are revealed for HP to acquire Compaq in an all-stock deal worth $25 billion. The new entity will have annual sales of $87.4 billion and operating income of $3.9 billion
September

2001
The EC announces it will investigate the planned acquisition, as standard practice
September

2001
HP, Compaq announce they will save $2.5 billion annually by merging. Unfortunately, the bulk of the savings will come from 15,000 layoffs
October

2001
HP CEO Carly Fiorina names executives to take the helm of the new merged company. Among these are Compaq CTO Shane Robison, who is tapped for a spot as CTO and senior V-P, and Compaq CIO Bob Napier, who is to be brought in as CIO and senior V-P. Fiorina will continue as CEO
November

2001
The EC conducts talks with HP and Compaq as a precursor to applying for EC approval
November

2001
David Packard, son and namesake of HP’s co-founder, steps forward as an opponent to the acquisition, releasing a statement detailing his reasons, many of which coincide with Walter Hewlett’s. He also expresses concern about layoffs 
November

2001 
HP and Compaq are asked by the FTC to supply more information about their acquisition
November

2001
HP board votes in favor of the Compaq acquisition
November

2001
Walter B Hewlett, Eleanor Hewlett Gimon, and Mary Hewlett Jaffe, children of William Hewlett, as well as Hewlett trusts voice their opposition to the acquisition. The family and trust own over 5% of company stock
December

2001
HP files a response to Hewlett’s proxy statement, opposing the acquisition. It says the deal “will accelerate our strategic transformation by years, by bolstering our businesses, including enterprise computing, PCs, IT services and printing
December

2001
HP submits an application seeking European approval of the deal by the EC
December

2001 
Statement filed with SEC by Hewlett and fellow opponents. The statement will be sent to shareholders, accompanied by a card that can be sent to the company as an anti-acquisition vote.
December

2001
Fiorina and Compaq CEO Michael Capellas speak out against opponents of the acquisition in a letter to shareholders that’s also filed with the SEC, describing the negative attitude as “simplistic anti-merger bias”
December

2001
Hewlett files an opposition before the SEC, focusing on the companies’ financial downslides since the deal was announced. Compaq’s share price has plummeted 17.8 percent to $10.15 and HP’s 5.3% to $21.99 in the three months since the merger was announced
January

2002 
Hewlett tells HP shareholders that the company has nothing to gain and will only be weakened. He says HP is a “great company” that will be become “less focussed and more troubled” after the deal
January

2002
Alliance Capital Management Holding LP is HP’s first institutional investor to support the acquisition publicly in a filing with the SEC, a move that may calm jittery investors
January

2002 
HP addresses shareholders in a letter championing the acquisition and discrediting opponent and board member Walter Hewlett, son of HP co-founder William Hewlett. The only board member not in favor, HP describes him as “a musician and academic”
January

2002
HP and Compaq miss the deadline for concessions in the EC probe, suggesting that the companies have not offered to sell any of their activities in an effort to avoid delay of the approval. There’s speculation that this means they expect a full-length investigation, and are saving any possible concessions as a bargaining pawn
January

2002
Still waiting for word from the FTC, HP and Compaq are greeted with news that the EC has given a thumbs-up to the acquisition after a month-long investigation. While the EC acknowledges the breadth of the deal, it says the merged company will not negatively impact prices or hinder customer choice
February

2002
HP announces that shareholders will vote on its proposed acquisition of Compaq on March 19 at a meeting in Cupertino
March

2002
Voting takes place on the proposed acquisition. Firoina claims victory. “No,” says Hewlett

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

Advertisment