September 6, 2001 4:45 PM PDT

Gateway CEO thrilled with HP-Compaq deal

What was Gateway CEO Ted Waitt's first reaction to word that Hewlett-Packard plans to buy Compaq Computer?

"I said, 'Cool,'" Waitt recalled in a telephone interview Thursday. That's because the proposed deal will keep both rivals preoccupied for the next six months, Waitt noted, and integration issues could plague the combined company for several years.

"It is a huge challenge to...restructure the two companies individually," Waitt said. "The complexity increases exponentially when you try and combine two companies that both need to be restructured in their own right."

Gateway has been going through some tough restructuring of its own. The San Diego-based company announced plans last week to pull back from overseas markets and slash its work force by up to 25 percent.

The HP-Compaq deal, if completed, would put a severe dent in competition in the retail market because the two companies account for roughly 75 percent of PC sales in U.S. stores. But Waitt said Gateway, which is a direct seller of PCs, has no plans to put its products on store shelves.

"There is a huge opportunity for somebody right now, but show me somebody who has done it profitably," Waitt said. "Someone else will do it and pick up the revenue."

Although one analyst speculates that the deal could lead to less price pressure during the holiday-shopping season, Waitt said he is not convinced that will be the case. Another theory is that HP and Compaq could ratchet up the price pressure to demonstrate to regulators how competitive the market is.

Waitt added that he does not believe the HP-Compaq deal will necessarily spark a long-predicted wave of consolidation.

"Based on the way people reacted to this one, I don't think you will see a whole lot more of them," he said.

The value of the HP-Compaq deal, initially pegged at $25 billion, has plummeted as investors have shown their displeasure.

Although he has gotten plenty of interest from investment bankers eager to set up a deal for Gateway, Waitt said, he believes his company's shareholders are best served with Gateway as an independent company.

"They've called, trust me," Waitt said.

 

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