Fiorina Defends Compaq Acquisition Price Tag As Voting Closes

Hewlett-Packard Compaq Computer

"We are buying a $7 billion storage company, a $7 billion professional services company with 14 points of operating margin, the No. 1 fault-tolerant computing company, the No. 1 NT server company," said Fiorina. She pointed out that the NT server market is growing at 20 percent per year and HP has, for the most part, missed out on the opportunity to capture some of that sales growth.

As for the PC business, Fiorina said Compaq has a "direct distribution that HP lacks and HP needs. . . . We are not paying too much."

Fiorina's comments came a short time before the polls were closed at 1:15 p.m. EST.

Observers have said it could take days, or even weeks, before the official result of the voting is known.

In yet another sign of the high drama and emotion at the meeting, Fiorina was booed by a large number of shareholders when questioned about HP morale and employee surveys from HP that show the majority of employees supporting the deal.

"I absolutely agree that employee morale is vital to the success of [HP, but the majority of our employees support the merger," she insisted, which drew boos from the audience.

Referring to surveys done by HP board member Walter Hewlett, who has campaigned to kill the deal, Fiorina said: "Please do not assume that how employees feel in Cupertino, Fort Collins and Boise is how they feel all over the country."

Responding to a report that 66 percent of retirees and 72 percent of HP employees oppose the deal, Fiorina said: "Newspapers have been wrong before."

Dan Dove, a 22-year HP veteran who works in research and development, said if the deal is approved, he will leave the company. Dove's remarks drew loud applause from shareholders.

"I oppose this merger," he said. "I don't have trust for the organization, and if it goes through, I will not be working for this company for very much longer. I regret that because I love this company very much."

Fiorina conceded that the Compaq/Digital Equipment Corp. merger was not handled well and there were a few "cardinal mistakes" that needed to be fixed by the new management team led by current Compaq CEO Michael Capellas.

Among the mistakes Compaq made, said Fiorina, was that the "integration of the two companies was not planned well, and decisions were not made quickly and crisply."

Fiorina said the 900-person full-time integration team on the HP-Compaq merger has studied many mergers to "make sure we learned those lessons well."

"We are prepared to execute the merger [from day one," said Fiorina. "We have a product road map ready for the next three years." If the deal is approved by shareholders, Fiorina said, Compaq employee paychecks from day one will say HP.

Fiorina said she hopes when people look back on the merger one year from now they will say "this was a decisive and shining moment for the Hewlett-Packard company."

When asked by a former HP employee what her plans are if the merger is not approved, Fiorina said she agrees with Walter Hewlett on some points, particularly that HP is not a company in crisis.

"I agree that with or without the merger, the value is always delivered by employees. . . . The board has considered a host of alternatives, and if voted down, we would go back and look at alternatives."

Fiorina said HP management brought the merger alternative to shareholders because "we think it is the best." If voted down, Fiorina said, the company will look at alternatives but "we would have lost valuable time."

When an HP employee representing a group of European employees asked Fiorina to commit to no layoffs in Europe, Fiorina said: "I can't make the commitment that you asked for."

Layoffs should always be a last resort, Fiorina saId, but she added that it is "time that profit is the primary objective. It is the foundation for all else."

Fiorina said there will be 15,000 positions eliminated if the two companies are combined, but the new HP will be advancing its market leadership.

"This merger gives us a plan to return businesses [within HP to profitability," she said.

LARRY HOOPER, ELIZABETH MONTALBANO and MARCIA SAVAGE contributed to this story.