Hewlett urges 'no' vote on merger

by Sam Costello

January 17, 2002 —

In his first direct, written communication to Hewlett-Packard Co. shareholders, Walter B. Hewlett, son of Hewlett-Packard Co. co-founder William R. Hewlett, sent a letter to stockholders Wednesday urging them to vote against the proposed merger with Compaq Computer Corp., a merger that he said would leave HP "less focused and more troubled."

The merger, which is opposed by both the Hewlett and Packard families as well as the foundations they represent, is set to be voted on at a shareholder's meeting in early 2002, though no date has yet been set. The Hewlett and Packard families, as well as their foundations, control about 18 percent of HP's stock.

Calling Hewlett-Packard a "great company," Hewlett urged shareholders to reject the merger, arguing that it had already negatively affected the value of HP and would do nothing to improve the company's future prospects.

If the merger were to be successfully completed, HP shareholders would see their share of the company's valuable imaging and printing business diluted and their risk in the high-stakes, low-margin world of consumer PCs increased, Hewlett wrote. Such a move, he said, would leave HP a weaker company than before the merger.

Further, he argued, the merger would not significantly improve the company's standing in the more profitable high-end server market, nor boost its consulting business.

Hewlett also cited previous mergers between computer companies that did not pan out, including AT&T Corp.'s acquisition of NCR Corp. and Compaq's purchase of Digital Equipment Corp.

"The complexity of putting two companies together, in a difficult economy, when each company is currently undergoing its own transition, presents daunting challenges and unacceptable risks," Hewlett wrote of the HP-Compaq proposal.

In place of the merger, HP "needs to focus on what it does well, and to change and grow organically, with targeted tactical acquisitions -- a strategy that has proven to be successful in the technology industry," he wrote.

"In some respects," Hewlett wrote, "Hewlett-Packard was in need of a wake-up call and the reaction to this proposed merger has certainly provided one."

When announced in early Sept. 2001, the marriage of HP and Compaq was valued at US$25 billion. Negative Wall Street reaction to the deal, however, sent both companies' share prices down and devalued the merger. If the deal goes through, as many as 15,000 employees could lose their jobs as a direct result of it.

IDG News Service