Capellas: Compaq Committed to Merger with HP

Compaq CEO tells employees in an internal memo that deal with HP still makes sense.

Compaq Computer Corp.s top executive told employees in an internal memo that he remains committed to pursuing the merger with Hewlett-Packard Co., despite the rejection of the deal by HPs largest shareholder last week.

In an message sent Friday to workers of the Houston-based computer maker, Compaq Chairman and CEO Michael Capellas argued that the controversial $25 billion merger, which has drawn widespread criticism from HP investors and industry analysts, is still in the companys best interest.

The memo was released after the David and Lucile Packard Foundation, which controls more than 10 percent of HP stock, announced Friday that it had "preliminarily decided" to vote against the merger. The foundations decision, analysts said, could lead to the unraveling of the deal, which was first announced in September.

"Although we are disappointed (by the foundations decision), we continue to believe that the merger is in the best interests of shareholders, employees, customers and partners," Capellas said in the memo. "Our responsibility is to maintain a pragmatic view of our business and a clear focus on the future."

Overall, he said, the merger achieves three objectives, in that it would "extend our enterprise capabilities across products, software and solutions; achieve critical mass in our global services business; and improve the economics of our PC business, while also driving innovation around new access categories and devices."

But while acknowledging that the merger may fall through, Capellas said the companys objectives remain unchanged.

"This isnt just about the merger. This was also the direction we set in June, when I outlined our new strategy and established an aggressive 180-day execution plan. That strategy has not changed," he said. "We believe the merger will help accelerate the strategies of both companies. But regardless of the circumstances—whether we are part of the new HP or a standalone company—I am confident in our ability to achieve these objectives."

Capellas also urged Compaq employees not to allow themselves to be distracted by continuing developments and speculation surrounding the merger.

"I know you have a lot of questions about what this development means for the merger and for Compaq. We will communicate in more detail in the coming days as we analyze the situation further," Capellas said. "The best thing we can do right now is to maintain our positive momentum in the market."