ISS VP: HP Compaq Deal Is A Winner

"The big issue here was always integration risk," said McGurn in an interview on CNBC after ISS endorsed the controversial deal. "Were the synergies that had been promised in this deal going to be delivered and was this the right management team to really execute on this plan? And at the end of the day after meeting with [HP's management team for numerous times for hours on end and going through their integration plan, we really believe this deal is going to work."

Noting that ISS does an analysis of hundreds of mergers each year, McGurn said: "I think we frankly have a pretty good idea about what makes mergers work and what makes mergers fail and we think this is a winner."

Dissident HP director Walter Hewlett said in a statement, "We strongly disagree with the ISS decision. We believe that the HP/Compaq merger will destroy stockholder value."

The endorsement came after HP Chairman and Chief Executive Carly Fiorina told analysts that HP and Compaq have already made the tough decisions about channel strategies and products so the company is "executing from day one rather than deciding which product lines and strategies will be eliminated." Fiorina said that 600 full-time HP Compaq employees have spent some 500,000 hours making those decision.

Fiorina could not be reached for comment following the ISS announcement.

At the same time, ISS sided with HP, the advisory firm commended HP dissident board member Walter Hewlett, who is attempting to kill the deal. Hewlett, the son of one of the HP co-founders, has argued that HP is diluting its highly profitable printing and imaging business and getting too deep into the commodity PC market by acquiring Compaq.

"This is an unprecedented situation in that you have not only a large investor but a director of a company coming in and saying I don't like the deal," said McGurn. "So we gave a lot of weight to that. We spent a lot of time meeting with Mr. Hewlett and his advisors and at the end of the day we think he really played a constructive role in really putting management's feet to the fire and forcing them to make major strides in integrating this deal."

McGurn said "a split-off or spin-off of the imaging and printing business really would leave you with a bunch of assets that really weren't worth very much at the end of the day."

"What we believe this long-term strategy does is allow [HP to build up both a profitable PC business over time" and also make its enterprise, server and services business "much stronger," he said.McGurn said that services were "an increasing part of this market equation as well."