CUPERTINO, Calif.–Although an official tally has not been reached, Carly Fiorina, chairman and CEO of Hewlett-Packard Co., last week announced that, according to early results, company shareholders had approved HPs plan to purchase Compaq Computer Corp. for about $22 billion.
If independent election inspectors certify that HP has prevailed—an effort that could take several weeks—then the real work begins. Among the many challenges facing Fiorina are integrating the products, people, services and cultures of two of the worlds largest computer companies—a job that has been in the works for months by a 900-person integration team headed by HP.
“The thing that is most troublesome to both employees and customers is the uncertainty, and we want to … remove that uncertainty as quickly as possible,” Fiorina said, after the shareholder vote held here. “As soon as we have official vote certifications and legal closure, we will be speaking to our customers in great detail.”
While details have yet to be released, HP is expected to seek to leverage Houston-based Compaqs market leadership in sales of fault- tolerant servers, Intel Corp.-based servers, storage devices and PCs, as well as its sizable professional services division.
Those capabilities, when combined with HPs highly profitable imaging and printing systems and its valuable Unix server business, will result in an unquestionably powerful company, said one industry analyst.
“By and large, the companies do fit together well,” said Nathan Brookwood, an analyst with Insight 64, in Saratoga, Calif. “And even in those areas where they do overlap, I dont think theyll have a problem.”
While critics have assailed the merger as an imperfect union of two largely similar companies, Fiorina counters that such a broad view fails to take into account the benefits that become more apparent when the details of how each company operates are examined.
For example, while both HP and Compaq sell PCs, HP is a leader in retail sales of PCs, while Compaqs strength lies in commercial PC sales.
In addition, Compaq in the last two years has made far more progress than HP in moving to a more efficient build-to-order PC business model that will prove critical to enabling it to compete on price against market leader Dell Computer Corp., of Round Rock, Texas.
Fiorina will also try to broaden the companys offerings and tap new sources of revenue. “We need to go after real growth opportunities,” she said to shareholders, noting that includes “servers, storage, software, professional services and, yes, even the lowly PC.”
But Fiorina also faces the task of healing internal company wounds, collateral damage of the often-personal campaign.
That damage was on full display at HPs raucous shareholders meeting here last week, where most of the 3,000 shareholders attending (HP has about 900,000 shareholders) were current or former employees who oppose the merger and Fiorinas leadership. “Im against it,” said HP worker Shirley Soldin, citing “the spectacular incompetence with which most of the internal initiatives have been executed over the past two years, as well as the financial costs” of the deal.
Bill Boller, a shareholder and former employee of Agilent Technologies Inc., which was spun off from HP two years ago, agreed. “Irrespective of whether its a good deal or not, I think the probability of pulling it off is real low,” Boller said. “Fundamentally, I think its a bad deal.”
HP, of Palo Alto, Calif., has 85,000 employees; Compaq has 63,000. Officials from both companies estimate that 15,000 jobs will be lost when the companies merge. But some HP employees fear that something else will be on the chopping block: the worker-friendly “HP way” corporate culture.
Underscoring employee resentment of the buyout, Walter Hewlett, a board member and critic of the merger, received a lengthy standing ovation when introduced by Fiorina, who was later jeered when she declared that HPs internal surveys show most workers support the deal. “That is a fact,” Fiorina said, raising her voice over booing from the audience.
Conflicting employee surveys
Conflicting employee surveys
Employee surveys played an important role in the proxy battle waged by Hewlett, son of a founding HP partner, who has published three surveys conducted by his consultants showing that employees at three U.S. facilities were overwhelmingly against the deal. HP conducted its own internal surveys gauging reactions from employees at all its global facilities, using third-party software. The surveys delivered opposite results.
Still, an informal poll, conducted on the companys internal network, that was functional from November through last month showed that a majority of the people responding to that poll were not that “confident” about the future of HP after hearing Fiorinas fourth-quarter message in which she talked at length about the deal.
An HP official discounted the poll as unscientific.
While Fiorina acknowledged the proxy fight deeply divided HP, she said she hopes opponents will quickly move past the battle and focus on the challenges of building a bigger and more profitable company.
“I am hopeful that, having gone through this contest, we can now put this contest behind us and find common ground and move on,” Fiorina said.
It could be several weeks before the official tally is in. IVS Associates Inc., of Newark, Del., must review the votes submitted before making a final ruling. But based on a preliminary review of the proxy votes, Fiorina said she is ready to move forward in merging the two companies. “We, of course, acknowledged that this is not yet an official vote,” Fiorina said, “but we do think we have sufficient votes to pass the merger.”
Hewlett contended that HPs “razor thin” vote lead might not hold up and that the race is “too close to call.”
“In a proxy contest this close, where stockholders are changing their votes right up to the closing of the polls, it is simply impossible to determine the outcome at this time,” Hewlett said at a separate news conference after Fiorina spoke.
But as much as Fiorina admitted that there is work to be done with employees, she said much of her attention—which, until this point, has been spent lobbying investors in support of the deal—will be turned to customers, many of whom said in the weeks prior to the vote that they had little idea of what the new company will look like or what will happen to their investments in HP and Compaq technology.
“Were going to watch this shake out to see what it all means. We want to know, What are the new rules going to be, how are they going to be producing PCs, what will the support be like?” said Marshal Fernholz, procurement manager for the American Medical Association, in Chicago, which relies mostly on Compaq hardware. “In the meantime, well certainly be looking at alternatives in case we have to go with a Plan B.”
While Fiorina said she is still bound by legal restrictions on what she can disclose, she outlined three areas of customer concern HP will address once the purchase is finalized.
First, the company will unveil road maps to show what HP and Compaq products will be retained or discontinued. Second, HP will name account representatives who will serve established customers. Third, it will detail new ways of interacting with HP representatives, such as through newly integrated Web sites or representatives using phones.
Fiorina—who will be CEO of the merged company, with Compaq Chairman and CEO Michael Capellas serving as president—said she has “extremely high confidence” that the melding of HP and Compaq will proceed smoothly, with little, if any, negative impact on customers.
“We are making decisions based on whats best and what works,” Fiorina told shareholders.
In declaring victory, though early, in her bid to build HP into the worlds second-largest computer company behind IBM, Fiorina said stockholders have come to share her view that the company needs to make a bold move to remain competitive.
But one former HP employee bemoaned the coming changes and worried that other companies will follow suit, resulting in the disintegration of companies that previously focused more on technological innovations rather than profits.
“It happened to DEC [Digital Equipment Corp., bought by Compaq], a great technology company. Its about to happen to HP. Whos next?” said Ted Laliotis, who retired from HP last year after 20 years with the company. “Im concerned more about what happens to companies like HP that made the Silicon Valley and the high-tech industry what it is today.”
Additional reporting by Michael R. Zimmerman
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