Hewlett, Packard families oppose HP/Compaq merger

The families of the founders of computer giant Hewlett-Packard Co. have come out opposed to the company's $21 billion merger with Compaq Computer Corp. and will use their combined stockholding in HP to vote against the merger.

Members of the family of HP co-founder William R. Hewlett said in a statement yesterday that they would vote against the deal. The Hewlett family and its trusts own about 106 million shares, or about 5.5% of the company.

Today, according to published reports, David Packard, the son of co-founder David Packard, also said he intends to join the Hewlett family in opposing the merger (see story).

Packard is the founder of the Packard Humanities Institute, which owns 25.76 million shares of HP -- roughly 1.3% of the company -- as of HP's most recent proxy filing. The organization is "extremely unlikely" to support the merger, according to Packard's statement.

The David and Lucile Packard Foundation, which is separate from the Humanities Insititute, owns 201 million shares, or 10.4%

Analysts said the decision by the families could be the kiss of death for the merger because it could influence other shareholders to also vote against the deal.

In the statement, Walter B. Hewlett, an HP board member, said that "after careful deliberation and consultation with my financial advisers and consideration of developments since the announcement of the merger, I have decided to vote against the [merger]. I believe Hewlett-Packard can create better value for stockholders as a stand-alone company than as a company combined with Compaq."

Walter B. Hewlett, Eleanor Hewlett Gimon, Mary Hewlett Jaffe and The William R. Hewlett Revocable Trust said they intend to vote their shares of the company against the proposed merger.

In voting against the merger, Walter 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.

"I firmly believe that partnering with Compaq will not give Hewlett-Packard what it needs to create additional stockholder value," he said.

Packard, in a report in the San Jose Mercury News, said he agrees with Walter B. Hewlett's criticisms of the deal. He also focused on the massive layoffs expected if the deal is completed. "For over 50 years, one of HP's fundamental corporate objectives has been to provide long-term employment for its people," Packard said in the statement.

Walter Hewlett also said he has been informed by an independent committee of The William and Flora Hewlett Foundation that the foundation has reached a preliminary conclusion to vote its Hewlett-Packard shares against the merger. Walter B. Hewlett, Eleanor Hewlett Gimon and Mary Hewlett Jaffe are children of HP co-founder William R. Hewlett. Walter Hewlett is a trustee of the William R. Hewlett Revocable Trust. That trust, the Hewlett Foundation, and the family members together own more than 100 million shares of HP stock.

Members of HP's board, meanwhile, except for Walter B. Hewlett, issued a statement reaffirming their support for the merger, as well as their support of HP CEO Carly Fiorina.

In the statement, Dick Hackborn, former chairman and executive vice president of HP, fully supported the merger. "Today, I'm even more convinced of the power of this combination, particularly given the progress of our integration plans. Under Carly's leadership, the new HP will continue to be an innovation leader with a culture focused on trust, teamwork, accountability and contribution," the statement said.

Compaq's board also issued a statement reaffirming its strong support of the proposed merger.

"The combination of these two great companies will create an even stronger market and technology leader," members of Compaq's board, including Chairman and CEO Michael Capellas, said. "The board is more convinced than ever that the merger serves the best interests of shareholders, customers, partners and employees."

Neither HP nor Compaq officials could be reached for comment at deadline beyond the statements made by their boards.

Jonathan Eunice, an analyst at Nashua, N.H.-based Illuminata Inc., said the Hewlett family's decision was, at the very least, embarrassing to HP. Eunice said the family's opposition could potentially influence other shareholders.

Eunice said both HP and Compaq have been involved in "massive, failed" mergers, including HP's merger with Verifone Inc. and Compaq's with Digital Equipment Corp. and Tandem Computers Inc.

"Fiorina and Capellas haven't had any track record of doing this," he said. "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."

Dan Kusnetzky, an analyst at IDC in Framingham, Mass., said the Hewlett family is probably concerned about the loss of business from Fortune 1,000 companies when products from Tandem and Digital -- 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," said Kusnetzky.

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. "Carly is putting her job on the line," he said.

Laurie McCabe, an analyst at Summit Strategies Inc. in Boston, said the opposition to the 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?

"I think the families are asking what the pundits and analysts have been asking -- what is the net benefit to this," McCabe said. "At a minimum, there should be some cause for concern. 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. They're going to cut her less slack."

Under the terms of the existing merger proposal, HP will acquire Compaq in an all-stock purchase valued at $21 billion, according to officials from both companies.

Stacy Cowley of the IDG News Service contributed to this report.

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