HP Declares Slim Victory in Merger Vote
One of the nastiest corporate battles drew to a close Tuesday as Hewlett-Packard Co. proclaimed victory in its $20-billion bid to take over Compaq Computer Corp. and create the world’s largest maker of personal computers.
HP Chief Executive Carly Fiorina claimed a preliminary win in the dramatic proxy fight by a “slim but sufficient margin,” after a special shareholders meeting. The lead critic of the deal, company director Walter Hewlett, on Tuesday refused to concede defeat, saying the margin was less than 2%.
The acquisition would create a Palo Alto-based behemoth with $82 billion in annual sales, 145,000 employees and the largest market share in personal computers, most types of large business computers and printers. It would be the second-largest company headquartered in California, after San Francisco-based ChevronTexaco Corp., itself created in a merger last year.
The merger is critical to HP’s role as one of the leading technology companies in the world and a bellwether for the industry, according to supporters. At a time when technology companies are struggling to regain the momentum they enjoyed during the boom of the late-1990s, Fiorina wants the historic innovator to grow in preparation for a technology resurgence.
It could be weeks before official results are announced because shareholders could cast multiple ballots. Only the last ballot counted, and some observers called Fiorina’s victory announcement premature.
“You know how it was when CBS said, ‘We’re going to call Florida for Gore,’ and they were wrong?” said Mark Specker, managing director of SoundView Technologies Group. “Well, she’s probably got a little higher level of prevision than that, but she may not completely know.”
Tuesday’s contentious meeting capped a four-month campaign in which HP and Hewlett tried to woo shareholders with a multimillion-dollar blitz of newspaper ads, mailings and telemarketing calls. The battle pitted Fiorina, the highest-ranking female executive in the Fortune 500, against Hewlett, a mild-mannered engineer and son of HP founder Bill Hewlett.
Because large institutional shareholders were split on the merger, individual investors played a larger role than usual in deciding the fate of two companies. Fiorina, a marketing executive brought to HP three years ago as the first outsider to lead the company, argued that an alliance with Houston-based Compaq would give HP the natural advantage of size and a diverse line of products--from printers and PCs to hand-held organizers and powerful corporate servers.
Hewlett, however, claimed that HP would dilute its profitable divisions with Compaq’s struggling computer business. His opposition alienated him from the board on which he has served for 15 years and divided shareholders.
In his remarks after HP’s announcement, Hewlett hinted that the odds were now against what had been an unlikely insurgency from the start. “We have proved that accountability to shareholders is not a platitude,” he said. “I will resume my normal life as an academic and musician.”
That line of Hewlett’s remarks nevertheless played on a widely criticized shareholder mailing from HP that first personalized the contest between Fiorina and Hewlett, who initially supported the deal.
The mailing, one of as many as nine received from the two sides by even small investors, derided Hewlett as a “musician and academic” without mentioning his software expertise or role as an active director at multiple technology companies and nonprofits.
As the war of words intensified, Hewlett said last week that if the merger failed, Fiorina should go and be replaced by a CEO who wasn’t “learning on the job.”
Fiorina’s track record became one of a number of issues in the debate over Compaq that divided employees from employees and investors from investors.
Fiorina alienated some workers from the beginning. She pledged to quicken the pace of the “HP Way,” a celebrated culture that prized consensus and technical elegance.
As the technology boom turned bust and HP’s profit and share price followed, Fiorina angered some investors and Wall Street analysts with missed projections.
All the while, she was leading the board in a discussion of alternatives as radical as spinning off the company’s money-earning printer division and shutting down the company’s third-ranking computer arm entirely, HP disclosed during the proxy fight.
But nothing else was as radical as the solution she came up with: a merger of near-equals that would add HP to Compaq, the 20-year-old PC specialist that was losing market share to cross-Texas rival Dell Computer Corp.
When the deal was announced, HP shares fell as much as 20%, prompting Hewlett, fellow founder’s heir David W. Packard and others to call on HP to reverse course, using their combined 18% stake in the company to form the nucleus of the opposition.
Fiorina won votes with personal visits, phone calls, and a convincing argument that holders needed to look beyond the bad news in the contracting personal computer industry.
Although virtually every other technology merger of any size has been considered a failure, Fiorina says the Compaq deal is different. It would enable cost savings of a projected $2.5 billion a year through product and job eliminations while simultaneously allowing HP to increase its market share in multiple lines.
HP clearly sweated over the details, devoting hundreds of workers to full-time planning of how the consolidation would work.
At Tuesday’s meeting, HP and Compaq employees from as far away as France came to oppose the acquisition, largely for fear of losing their jobs. One recently laid-off worker from Livermore banged a drum and wore a green cape, the color of the proxy cards against the merger.
But Fiorina warned that not all of the 15,000 layoffs contemplated by the merger’s planners would be avoided if shareholders rejected the deal. “We have 36,000 people in money-losing businesses,” she said. “Profit is the foundation for everything we do.”
Several employees and retirees said Fiorina comes across as regal and badly out of touch with what long-term HP workers thought was best. Many of the 2,000 in attendance at the meeting in a Cupertino college auditorium booed when Fiorina claimed majority employee support for the Compaq deal.
“The booing--that alone would show you that this is a very serious problem,” said HP shareholder John Wharton, a Silicon Valley consultant and Intel Corp. veteran. “When the old management wanted to know what employees wanted, they would ask them. This management commissioned a survey,” Wharton said.
Fiorina, in declaring apparent victory, said she hoped that the divisiveness would end “once the ground has cooled.”
“Building a bridge begins today,” she said. “To the Hewlett and Packard families, I say that this company will always proudly bear your name, and we will strive to be faithful stewards of the legacy of this company.”
HP shares fell 45 cents to $18.80, while Compaq rose 78 cents to $11.14, both on the New York Stock Exchange.
Compaq shareholders are expected to approve the deal at a meeting in Houston today.
Times staff writer Karen Kaplan contributed to this report.
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