HP Founders' Kin Say No to Compaq Merger

Hewlett, Packard families could sway other stockholders to scuttle huge deal

Analysts last week said that the decision by the families of the founders of Hewlett-Packard Co. to oppose the computer giant's planned merger with Compaq Computer Corp. could be the kiss of death for the deal. The families' opposition could influence other shareholders to also vote against it, they warned.

Brett Miller, an analyst at A.G. Edwards & Sons Inc. in St. Louis, said the announcement by the Hewlett family is a major vote of no confidence, albeit a symbolic one. HP CEO Carly Fiorina "is putting her job on the line," he said.

Laurie McCabe, an analyst at Summit Strategies Inc. in Boston, said the opposition to the $21 billion merger by the families sends the same message that 90% of financial and industry analysts have been sending since the merger was announced. Does it make sense for "the two companies - with things not going as well as they should be—to act like beasts trying to devour each other?" she asked.

"At a minimum, there should be some cause for concern," McCabe said. "And having a big shareholder—and member of the founding family—publicly voice their disapproval undermines Carly's position. She is going to be more under the gun now to prove this can work."

Jonathan Eunice, an analyst at Illuminata Inc. in Nashua, N.H., said the Hewlett family's decision was, at the very least, embarrassing to HP. "HP's always been a friendly company, and friendly, soft and cuddly companies have a lot more trouble in mergers, unlike hard-as-steel companies like Computer Associates," he said.

Dan Kusnetzky, an analyst at IDC in Framingham, Mass., said the Hewlett family is probably concerned about the anticipated loss of business from Fortune 1,000 companies when products from Tandem Computers Inc. and Digital Equipment Corp.—acquired by Compaq in 1997—are phased out.

"They're planning to retire those products as soon as possible [after the merger]. Anyone using those products will strike back by buying them from competitors," he said.

According to published reports, David W. Packard, son of HP co-founder David Packard, said he intends to join the Hewlett family in opposing the merger. He is founder of the Packard Humanities Institute in Los Altos, Calif.

In opposing the merger, board member Walter B. Hewlett cited sluggish growth in the PC and low-end server markets, the potential dilution of HP's profitable printer and imaging business, and customer uncertainty that could be created after the merger.

The other members of HP's board issued a statement reaffirming their support of the merger and of Fiorina. Compaq's board also issued a statement reaffirming its strong support of the merger. However, the companies declined to comment beyond their official statements.

The IDG News Service contributed to this report.

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AT A GLANCE

Family Values

The Hewlett and Packard families own approximately 17.2% of HP. The breakdown:

Hewlett family and its trusts:

106 million shares 5.5%

The David and Lucille Packard Foundation:

201 million shares 10.4%

Packard Humanities Institute:

25.7 million shares 1.3%

Related:

Copyright © 2001 IDG Communications, Inc.

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