Compaq CEO Sees Merger On Track With Regulators


Compaq CEO Michael Capellas said Wednesday his company and Hewlett-Packard Co. were determined to hold shareholder votes in March on their $22.3 billion merger, and said regulatory approval was on track for that to happen.

"I think I can speak for us collectively--HP--here. We are absolutely bound and determined to get the vote in March," he said in an interview with Reuters.

"All the processes are moving forward. Whether it's filing the S-4 [merger plan document, regulatory approval, all the things are going through," he said.

A decision by European regulators on whether to approve the deal or prolong their investigation by four months--and potentially challenge part of the plan--is due by Thursday, but Capellas said he did not have official word on the ruling.

Whether the merger will be approved by shareholders is also still an open question. The deal has run into fierce opposition from key shareholders including HP director Walter Hewlett, the son of company co-founder William Hewlett.

Capellas and Hewlett-Packard Chief Executive Carly Fiorina this week independently briefed Institutional Shareholder Services, a company which will advise fund managers how to vote on the merger. Capellas said it would affect a "tremendous" number of funds but declined to say how the meetings went.

"I honestly feel better now than I did, say, four to six weeks ago," he added in a presentation to investors. In mid-December the final undeclared Hewlett-Packard founding family trust threw in with other family members against the merger, increasing the opposition bloc to 18 percent of HP stock.

But Compaq and HP had not estimated their support before setting in motion the voting process, Capellas told Reuters.

The companies have said that shareholders of record on Jan. 28 will vote on the deal, and by doing that they have tied themselves to a vote by the end of March. Capellas said they could change the date but did not plan to.

"We are watching pretty damn carefully--we don't see that happening," he said.

His company had delivered stronger than anticipated results in the fourth quarter and earlier this week raised its forecast for 2002, both of which would bolster support for management and thus the merger, he added.

Strong results needed

That was especially important after the Sept. 11 attacks and other issues skewed third-quarter results, he said.

Fiorina has urged employees to focus on delivering results for the company's fiscal first quarter, which ends on Thursday and will be reported in the middle of February.

Those numbers will be key to helping many investors decide which way to vote on the merger, Capellas said.

"Strong results from HP would indicate that we've been focused and continue to execute," he said.

Capellas told the investors at the conference, organized by Banc of America, that the companies had made it through the period when they were most vulnerable to customer defections.

"My biggest fears about revenue loss were in the quarter that just passed," he said. "Quite frankly it doesn't look like either company has lost much momentum."

He laid out the integration of the firms, which have total sales of $80 billion to $90 billion, as a fairly straightforward job and said Compaq's acquisition of Digital Equipment Corp, had been a success after initial stumblings.

Compaq tried to reorganize the sales forces while integrating and did not clarify its product line and assign responsibility for implementing changes, he said.

"There is not a lot of magic to what you have to do, but the product road map piece and the accountability piece was actually missing early" at DEC, he said.

In a statement issued Wednesday, Hewlett said that studies showed most technology mergers were a failure, including the Compaq-DEC alliance.

Hewlett argues that HP is taking on a vendor of commodity computers instead of a technology leader. HP and Compaq say they are addressing industry changes as well as saving money.

"History shows that management's optimism does not provide an escape from the economic reality that business model, not scale, determines success in commodity computing," Hewlett said in his statement.

HP has promised to quickly boost earnings and immediately to begin cutting some $2.5 billion in costs. "Whenever you have mixed opinions, you have to have early successes," Capellas said.

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