Regardless of merger outcome, duo must reassure users, prep for upheaval.
Whatever the outcome of this weeks shareholder votes on Hewlett-Packard Co.s proposed buyout of Compaq Computer Corp., both companies will have to heal strained relationships with their enterprise customers while navigating what promises to be massive internal upheaval.
Should HP and Compaq shareholders approve the acquisition in separate votes Tuesday and Wednesday, both computer makers will face the challenge of reassuring customers wary that the deal will result in the elimination of products and services.
"I dont think they should merge," said Matt Merrick, executive vice president of IT at Merrick Printing Co. Inc., in Louisville, Ky., which relies on HP for servers, printers and networking equipment. "If they do, I would hope that HP just obsoletes the whole Compaq line. Of course, Compaq customers are hoping for just the opposite."
If voters reject the acquisition, the failed deal will undoubtedly result in management shakeups at both companies. Last week, a leading opponent of the buyout, HP board member Walter Hewlett, predicted that company Chairman and CEO Carly Fiorina will be ousted if shareholders reject the deal. "This will be her second aborted merger in less than two years, and she wont have the credibility to lead the company," Hewlett said, noting Fiorinas failed $18 billion bid to buy PricewaterhouseCoopers last year.
Perhaps even more unsettling, two HP directors warned last week that several of the companys key decision makers, including most of HPs board, might resign should the merger fail.
"Walter [Hewlett] has said there will be no disruption if this merger is voted down. That is simply not the case," said Phil Condit, an HP director and chairman and CEO of The Boeing Co., in Chicago. "Individually, we will have personal conflicts if this merger is voted down. Well have a personal decision to make. ... Likewise, each member of the management team will have a personal decision to make."
Voting down the merger is not without its risk, said analyst Daniel Kunstler, of J.P. Morgan & Co. Inc., in San Francisco. "Regardless of how you feel about the strategic merits of the deal, were six months into this," Kunstler said. "There is no plan B right now; so there is definitely the shadow of some uncertainty hovering over this."
Several institutional shareholders have announced their support or opposition to the deal. Those divided opinions, along with the friction created among HP, of Palo Alto, Calif., Houston-based Compaq and their enterprise customers, illustrate the damage wrought by the controversial deal.