The pending acquisition of Compaq Computer by Hewlett-Packard (HP) will go forward as announced, company representatives have assured eSchool News. They expect the deal to be completed by early spring. But in the weeks since the acquisition was first announced, the proposed pact has met with increasing criticism.
The ultimate outcome of the pending merger is important to school leaders because Compaq and HP are leading providers of technology equipment in education.
Much of the criticism of the deal comes from members of the Hewlett and Packard families. On Nov. 12, it was revealed that Walter Hewlett, the son of the Hewlett-Packard co-founder William Hewlett, has hired MacKenzie Partners, a proxy solicitation firm. This move could signal the start of a proxy fight between the Hewlett family and the company over its proposed acquisition of Compaq.
Hewlett has not decided whether he will solicit proxies against the deal, a spokeswoman told the Reuters news service on Nov. 11, but he hired the firm to “preserve his options.”
A week earlier, Hewlett said the family’s trust, which owns about a 5 percent stake in the company, would vote against the transaction.
The David and Lucille Packard Foundation, which owns an additional 10 percent of the company, said it would decide later whether to support the deal.
On Nov. 9, the company said it would delay its December meeting with financial analysts until early next year, adding that it made the decision to do so before family members came out against the deal. Even before the family objections surfaced, Hewlett-Packard chairwoman and chief executive Carly Fiorina was fighting hard to win support for her $21 billion plan to acquire Compaq Computer Corp. Fiorina faces the increasing possibility the acquisition will fall through, putting her job at risk, the Associate Press has reported. And even if HP shareholders do vote for the deal, her leadership has been questioned at a difficult time, the wire service said.
“Clearly it’s a lot more challenging now,” said Toni Sacconaghi, an analyst with Sanford Bernstein & Co.
“Not only do (the Hewlett and Packard sons) have voting power, they have influence power because they are the family and the founders are fairly highly revered. More importantly, it sets in motion a more open forum for other shareholders to start voicing their opinion about the deal.”
Walter Hewlett said Compaq would give HP too much exposure to low-margin personal computers and dilute its valuable printing franchise. Hewlett, the eldest son of co-founder William Hewlett, is a member of HP’s board.
Then co-founder David Packard’s son, David W. Packard, whose Packard Humanities Institute has 1.3 percent of HP’s shares, said he agreed, and sharply criticized HP’s Fiorina approach to running the company.
“For some time I have been skeptical about management’s confidence that it can aggressively reinvent HP culture overnight – a culture that developed over many years and was thoroughly tested under all kinds of business conditions,” Packard said. “While change is necessary and inevitable, it does not follow that every innovation is an improvement.”
David W. Packard is not on the board of the charitable foundation his parents launched in 1964, which owns more than 10 percent of HP stock, making it the largest shareholder. Two sisters are on the board, however.
That organization is still undecided about the Compaq acquisition. The stakes are huge – roughly $4 billion of the foundation’s $5 billion in assets are tied up in HP stock.
Analysts say that if Hewlett and Packard family holdings are voted against the deal, the chances of approval would drop significantly. A date for a shareholder vote has not been set.
George Vera, the Packard Foundation’s chief financial officer, said he expects the organization will take at least a month to make its decision, in consultation with outside advisers.
HP’s full board of directors, except for Walter Hewlett, released a statement Nov. 7 saying it “unequivocally” backs Fiorina. Compaq’s board also reiterated its support for the deal.
“The board thoroughly analyzed this transaction and unanimously concluded this is the very best way to deliver the value our shareowners expect,” said Dick Hackborn, HP’s former chairman and executive vice president – and a member of the Hewlett family foundation’s board.
That and similar emphatic statements from HP’s directors have led Sacconaghi to believe that Fiorina’s job would not necessarily be in jeopardy if the Compaq deal falls apart.
Fiorina did not discuss these recent developments during a speech Nov. 7 in Los Angeles, though she said in response to an audience question that she is more focused on ensuring HP’s long-term financial health than on short-term issues.
“Doing that requires the courage of one’s convictions, but’s that’s also the CEO’s job,” she said. She declined to comment to reporters afterward.
Compaq Computer Corp.