Feds OK the HP-Compaq Merger

One more roadblock was removed from the HP-Compaq merger when antitrust regulators gave the deal a green light adding to the growing momentum for the merger just before a critical shareholder vote.

U.S. antitrust regulators has given the green light to Hewlett-Packard Co.s proposed buyout of Compaq Computer Corp., adding to the growing momentum for the merger just two weeks before a critical shareholder vote.

Todays ruling by the Federal Trade Commission, combined with an earlier decision by the European Union, means HP was able to convince regulators that its buyout of Compaq would not give the merged company undue influence over high-tech markets.

"The Commission conducted an extensive investigation of the mergers effect on competition in markets for personal computers, servers, and microprocessors, among other products," the FTC said in a statement released after the stock markets closed Wednesday. "Based on that investigation, the Commission did not find reason to believe that the proposed transaction would impair competition in any relevant market."

The FTCs decision came just one day after the HP-Compaq merger won the endorsement of an influential investment group, Institutional Shareholder Services. The ISS support was seen as critical to HP securing the backing of its institutional investors when the merger is put to a vote on March 19.

"If the ISS has rejected the deal, the chances of the merger going through would have been nil," said Dan Niles, a market analyst with Lehman Brothers in San Francisco. "With the ISS endorsement – a particularly strongly worded endorsement, at that – I think most folks are bullish that the merger will go through."

HP Chairman Carly Fiorina hailed the FTCs decision as a "major milestone."

"We are gratified by the FTCs decision. It validates our conviction from the outset that the merger can only enhance competition throughout our markets," Fiorina said in a statement. "Completion of the FTC review marks a major milestone in the approval process, and we are now focused on winning the shareowner vote."

But a spokesman for leading merger opponent Walter Hewlett, an HP board member and son of the companys late co-founder, said the apparent lack of antitrust concerns by HPs competitors should spur investors to once again question the value of the deal.

"We believe that HP stockholders should be concerned when competitors like Sun, Dell and IBM dont object to a transaction that is supposed to add value to HP," said Todd Glass, a lawyer with the law firm of Joele Frank, Wilkinson Brimmer Katcher, which has been retained by Hewlett to help wage his proxy fight. "We believe that Compaq does not bring HP value or competitive advantage."