March 20, 2002 4:00 PM PST

Compaq shareholders approve HP union

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Next up: The vote at Compaq

March 20, 2002

HP declares victory in Compaq merger

March 19, 2002
As expected, Compaq Computer shareholders have approved a deal for the company to be acquired by Hewlett-Packard, Compaq said Wednesday.

See special coverage: A Fight to the Finish

An ebullient Compaq CEO Michael Capellas said in a conference call after the meeting that shareholders appeared to have voted 9-to-1 in favor of the deal, adding that soon the heavy lifting of putting the two companies together would begin.

"It is going to be a company that operates in over 103 countries," he said. "The real challenge is moving things down in an organization with the same consistency."

Compaq alone spent slightly more than $50 million on merger-related expenses in the past six months. "There was a lot of advertising," Capellas said. Sources estimated that HP may have spent up to $100 million on the project.

The result comes a day after HP shareholders voted on the merger. HP CEO Carly Fiorina claimed victory in that contest, although merger opponent Walter Hewlett has not conceded defeat.

HP has said it will move to close the deal as soon as its shareholder vote is certified, which could take several weeks. Capellas said that approval could come as early as the first part of April.

Once the deal is closed, the combined company will reveal its product plans to the world, explain the new corporate structure and assign sales and technical contacts to customers, and reveal, at least internally, financial targets, he said.

In one of the more interesting twists in his press conference, Capellas indicated that the Compaq name would continue to live on after the merger. HP executives have said that the combined company will be called Hewlett-Packard, but they have been relatively vague about how it will use the Compaq brand name or the company's brands, such as the Evo brand of business PCs. HP representatives even denied earlier that the Compaq name would survive at all.

Capellas was far less ambiguous. "There is huge brand leverage in the Compaq name," he said. "You will see the Compaq brand used in the new company quite fully."

Analysts and computer resellers have predicted that HP will phase out its own business PCs, handhelds and Intel-based servers, among other products, and adopt Compaq's. Capellas' statements seem to indicate that the Compaq products adopted by HP will continue to carry the Compaq name, and will not be rechristened as HP products.

Layoffs will also likely begin fairly promptly, HP executives said yesterday. Approximately 15,000 employees will be let go in the merger, according to both companies. Houston, Compaq's current headquarters, will not be the only site hit by the reductions, Capellas said.

"We will have reductions across the board in both companies," Capellas said.

Layoffs to some degree could be determined by which product lines the company keeps. HP executives said last week that the company has embraced an "adopt and go" strategy under which it will pick up one product line--commercial PCs, for example--from one of the companies and drop the other. The management team and engineers behind those products will also largely continue to work at the combined company, HP executives said.

Although he was optimistic, Capellas said he has yet to see a turnaround in corporate spending, a key driver of the technology industry.

"I've heard the rumor that the recession is over. That is not quite obvious to many of us," he said. "We all believe the recession will end. Calling which particular quarter that it will come is difficult to predict."

Capellas declined to comment on whether dissident HP director Hewlett will become a director on the new company's board. Compaq and HP will independently appoint members to the board.

Compaq shareholders met in Houston on Wednesday for their uncontested vote, in a stark contrast to the circus-like atmosphere that was present a day earlier in Cupertino, Calif., the site of HP's shareholders meeting.

Compaq spokesman Arch Currid said it appeared that about 68 percent of Compaq's 1.7 billion shares were voted, meaning the deal passed by a clear margin.

Compaq had to pass a higher threshold to win approval. While HP needed only 50 percent of shares voted at the special meeting to win approval, Compaq's bylaws require the approval of 50 percent of all shares. Thus, those Compaq shareholders who didn't vote their shares were in effect voting against the merger.

Separately, HP CEO Carly Fiorina reached out to HP's employees, who have been sharply divided over the merger.

"It is now time for all of us, those who supported the merger and those who opposed it, to pull together for the benefit of this company, for our customers, for our employees and for our shareowners," Fiorina said in an e-mail to employees after Tuesday's vote.

In the e-mail, Fiorina also tried to put a positive light on Hewlett's challenge to the deal.

"The intense debate throughout this contest has raised important issues, and prepared us even more fully for the integration and marketplace challenges that lie ahead," Fiorina said.

 

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