Hewlett Says HP Shares Worth Up To $17 More Without Compaq

Hewlett-Packard Compaq

In his effort to continue fighting the proposed $20 billion-plus merger, Hewlett said a new "focus-and-execute" plan could double HP's operating margins and boost its value per share.

"HP's strong positions in its core markets provide the basis for what we believe are compelling alternatives to the proposed Compaq merger," Hewlett said in prepared remarks.

The study pegged the increase in value of HP shares at between $14 and $17 if steps were taken to refocus investments, he said. The full findings will be filed later today with the U.S. Securities and Exchange Commission, he said, and the report is titled "HP Has Higher Value, Lower Risk Strategic Alternatives to the Proposed Merger."

"The recent HP quarterly results, with the majority of operating profits derived from the Imaging and Printing business, reinforce the importance of building on HP's strengths, rather than buying the low-end commodity computing business, which accounts for approximately 65 percent of Compaq's total revenues," Hewlett said.

While the new analysis reiterates much of Hewlett's arguments since he said he would publicly fight the deal, it is the first time he has quantified share price gains he said could be realized without a Compaq merger.

HP and Compaq said on Sept. 4 last year that they had agreed to merge operations in the largest combination of computer makers in history. HP shareholders are slated to vote March 19 on whether to approve the deal; Compaq shareholders are slated to vote a day later.

In addition to repeating his past assertions that HP refocus on its printing and imaging business, as well as make new investments in its enterprise offerings, Hewlett continued to lay out his argument against acquiring Compaq's PC business.

"We firmly believe that HP should not double down on its exposure to commodity PCs and that HP would not benefit by attempting to be number one," Hewlett's statement said. "We believe HP can be successful in its Access business by focusing on consumer PCs and innovative new access devices with its excellent brand, technology and distribution capabilities. We note that HP is on the right track by outsourcing PC manufacturing. Buying Compaq, one of the largest producers of PCs, is contrary to that strategy and a large step backwards for HP."

Those backing the Compaq merger, including the rest of HP's board and its CEO, Carly Fiorina, have argued the deal is about more than acquiring Compaq's PC business. The Houston-based computer company also owns the Tandem high-availability computing line and has its own Unix operating system, Tru64, which it had already been planning to merge with HP's HP-UX operating system.

In a slide presentation accompanying his new analysis, Hewlett repeated his past statements that market reaction to the proposed merger has been negative--in a manner that has hurt shareholder value.

In addition to his position as an HP director, Hewlett also controls a block of shares he owns personally as well as shares held by the The William R. Hewlett Revocable Trust.

At mid-morning, shares of HP were trading at $20.40 on the New York Stock Exchange, up 4 cents per share on the day. Shares of Compaq were down 2 cents, to $10.93.