Sinking the biggest deal in IT history

The Hewlett-Packard/Compaq merger looks to have hit major problems at the end of last week, as the heads of the Packard Foundation announced that they would oppose the deal.

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By  Mark Sutton Published  December 8, 2001

The Hewlett-Packard/Compaq merger looks to have hit major problems at the end of last week, as the heads of the Packard Foundation announced that they would oppose the deal.

The Hewlett family has already said that it is against the deal, and now the Packard family has announced that it objects as well.

The reason cited for their resistance is simple—a lack of business benefit. It has been a familiar call from many sides ever since the deal was announced, that buying Compaq simply gives HP greater exposure in the already weak PC segment, without bringing any real benefits in services or server level computing.

A number of analysts have been knocking the move, but now with both families, who hold around 18% of outstanding HP shares. More importantly, the board of the Packard foundation has several influential ex-HP executives, including a well respected CEO and COO, who could swing support from HP employee and retiree shareholders.

With Walter Hewlett running around institutional investors encouraging them not to vote for the merger, it looks like shareholder approval could prove to be the missing ingredient in the deal. But what happens if it does fail?

HP would look to be in a strong enough position to weather a failure. Of course, it would be very hard for chief executive Carly Fiorina to survive, after having pinned so much on such a huge deal.

But aside from the chief exec, HP’s business still looks to be solid. In fact, with the threat of the Compaq brand disappearing, more than a few Compaq channel partners looked to see what was on offer from HP just in case.

Compaq on the other hand, has a greater challenge, should the deal not go through. While HP’s share price has gone up on every bit on news that points towards the merger collapsing, Compaq’s share price has gone down.

Michael Capellas’ position would look no more stable than Fiorina’s, but, at least on a global level, is Compaq solid enough to survive without the deal? The most pressing question is why would Capellas have agreed to the deal in the first place, if not trying to find refuge from the declining PC sector? Without the merger, Compaq needs to pick up the pieces, push ahead with building out services, and hope that it can survive.

For the staff and the partners of Compaq, who have already faced three months of uncertainty, sticking to the mantra of ‘business as usual’ must be getting tougher by the day.

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