Capellas Says HP/Compaq In Better Shape Than People Realize

"We are much, much further along than I think people realize," Compaq CEO Michael Capellas told a technology conference sponsored by Merrill Lynch. "In terms of having everything done, I think we're ready to go."

When the new HP officially launches Tuesday, it will immediately announce details on which HP and Compaq products will stay alive and which will be discontinued. The companies have shared some information with customers under nondisclosure agreements, Capellas says.

Capellas, who headed Compaq's internal technology operations and was chief operating officer before becoming CEO of the Houston-based company in 1999, will be No. 2 at HP behind chairman and CEO Carly Fiorina.

"Her and I get along amazingly well," Capellas says. "God knows we've been through enough together already."

One of Capellas' biggest tasks will be to soothe uneasiness among the company's 150,000 employees. Many expressed misgivings about Fiorina's style and the Compaq deal during HP's brutal proxy fight with former director Walter Hewlett. In addition, 15,000 jobs are due to be cut over the next two years.

"His role at Compaq has been one of conciliator, one of consensus-builder, and I think it's entirely likely he will play that role at HP," says Charles Rutstein of Forrester Research. "There are certainly fences to be mended there."

Capellas expressed confidence that the companies' massive organizations will be merged effectively--the biggest such attempt in the history of the computing industry.

He says he noticed at a recent retreat that most employees were identifying themselves by their internal business divisions rather than by whether they came from Hewlett-Packard or from Compaq. Such smooth integration wasn't seen in Compaq's much-maligned 1998 acquisition of Digital Equipment Corp., he says.

"I think you'll find the cultural aspects will be a lot less severe than people have been led to believe," Capellas says.

The merged companies will keep the HP name and headquarters in Palo Alto, Calif. However, HP announced Thursday that it will change its ticker symbol on the New York Stock Exchange from HWP to HPQ as of Monday to reflect Compaq's contribution.

Meanwhile, with the performance of the combined company highly uncertain, Moody's Investors Service is reviewing whether to downgrade HP's credit rating, which would make it more expensive for the computing giant to borrow money.

Separately, Standard and Poor's affirmed its existing credit ratings for HP but says it has a negative outlook for the company because of the riskiness of integrating Compaq in a challenging climate for the technology industry.

HP shares rose 23 cents to $17.09 on Thursday, while Compaq gained 11 cents to $10.76.

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