Fiorina’s Fervor
Two and a half years ago, new Hewlett-Packard Co. Chief Executive Carly Fiorina was the belle of corporate America, an engaging marketing whiz who had just become the first woman to lead one of the 30 blue-chip companies in the Dow Jones industrial average.
As the glamorous outsider reorganized the sleepy Silicon Valley powerhouse, HP’s stock fell by more than half. The honeymoon ended. And now Fiorina is consumed by a proxy fight with one of her own directors, founder’s heir Walter Hewlett, over her proposed $24-billion takeover of rival Compaq Computer Corp.
Many Wall Street analysts have condemned what would be the largest technology merger in history, likening it to a pair of listing ships lashing themselves together. About 18% of HP shares have been pledged against the deal.
But in the last two weeks, Fiorina’s sales pitch has begun to take hold. The stock prices of HP and Compaq show investors believe the merger they assumed would collapse is more likely than before to win approval.
Times staff writer Joseph Menn caught up with Fiorina over the weekend at HP’s corporate headquarters in Palo Alto, where her voice, flecked with the remnants of a New York accent, was hoarse from near-constant talks with investors. Here are excerpts from that interview.
Question: How many HP shareholders have you personally spoken to since this began, and what have been their reactions?
Answer: Our top 100-plus for sure, and the sense I’m getting is momentum is going our way. We are increasingly confident we will win this vote [which probably will be held in] early spring.
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Q: The history of large technology mergers is not pretty. In some of your more recent proxy filings you say that this merger will be more like Exxon and Mobil than, say Compaq and Digital Equipment. That seems like a leap. Is the industry so mature that it’s easier to merge now?
A: If you look at industries where mergers have worked, they are situations where similar companies come together in a consolidating industry.... In this case, Compaq-HP is once again two like businesses in an industry that clearly is consolidating.
The reason like businesses are important to a merger is, first, you understand each other’s businesses. When you understand each other’s businesses, the integration issues, while large, are manageable. And as well, you have an opportunity to advance your market position and take costs out at the same time. Most [previous] high-tech mergers were where a company was diversifying, not consolidating, which means not only did they not understand each other, but there was also less opportunity to get costs out.
Secondly, most tech mergers have been done at the tops of markets. That means you pay a very high price. We bought near the bottom.
And we picked a time when the market was moving slowly. Customers are not ripping out the infrastructure and making big new purchase decisions. They are taking their time, which means we have time to get our product line road map together. It also means your employee base is much more stable.
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Q: Even before Compaq, you were in the midst of one of the most dramatic, far-reaching restructurings of a modern technology company. You said it was going to be a long process. Aren’t you trying to do too much too soon?
A: We have, I think, executed very well on that program. It’s hard to see in the middle of a tech downturn. Consolidating our product lines, streamlining our processes, creating a unified face to the customers--those are critically important steps. It wasn’t too much too fast. It was critical. And those changes have been in preparation for what we are doing now. We could not have attempted this merger a year ago, but we can execute it now.
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Q: How did this company get in such dire straits that the only way out is what is admittedly a risky proposition?
A: I would not describe this company as in dire straits. I would describe this company as having some problems it needs to solve and some opportunities it needs to capitalize on. Our PC business as a stand-alone business is neither viable nor profitable. We have to solve that problem. Our [Windows] NT server business is losing money and losing momentum. Services needs more scope, scale and reach.
The merger with Compaq is a decisive move, instead of a series of eight or 10 moves. Doing it once and doing it thoroughly is a lot easier. Here you have an opportunity to grow more quickly in the growth areas, to advance our market position to leadership across the board and to get our cost structure in line. That’s a compelling opportunity.
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Q: When you met with employees last week, you said that though there would be 15,000 jobs cut if the merger goes through, 36,000 people who work in unprofitable businesses might be at risk if the merger doesn’t go through. What’s Plan B?
A: It’s important for everyone to understand that not doing this merger has its risks as well. Bill [Hewlett] and Dave [Packard] wisely put profit as their very first corporate objective for HP. Profit is the foundation for job preservation. We have struggled with the profitability levels of our enterprise and our computing businesses for years.
With or without this merger, we have to find a way to improve. The board of directors has spent 21/2 years looking at a whole series of alternatives. Frankly, we’ve looked at every alternative our critics have come up with. None of them, including doing nothing, is as good. If this merger were to be voted down, we would go back and reevaluate all of those alternatives.
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Q: Tell me about an investor you met who was initially skeptical and then came away convinced.
A: What tips people is understanding what we get in the enterprise space. Compaq is the No. 1 supercomputing company in the world. Compaq is the leading storage company in the world. Compaq has a $7-billion services business. They aren’t just a PC company. That’s a big “Aha” for people.
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AT A GLANCE
Full name: Carleton S. “Carly” Fiorina
Born: Sept. 6, 1954, in Austin, Texas
Personal: Married to Frank Fiorina, two stepdaughters. Lives in Los Altos Hills, Calif.
2001 salary: $1 million, stockoptions, no bonus
Education: Bachelor’s degree in medieval history and philosophy, Stanford University, 1976; master’s degree in business from the University of Maryland, 1980; master of science degree from MIT’s Sloan School of Management, 1989.
Career: Before joining Hewlett-Packard Co. in 1999, Fiorina spent 19 years at AT&T; Corp. and Lucent Technologies Inc. in senior positions in sales and marketing. She led Lucent’s spinoff from AT&T.;
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To hear Carly Fiorina’s speech at Los Angeles’ Town Hall in November, go to www.latimes.com/hwp.
