HP Says Compaq Deal Would Add Up to $9 a Share

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Computer and printer maker Hewlett-Packard, seeking to reinforce the case for its $25 billion bid for Compaq Computer in a filing with the U.S. Securities and Exchange Commission earlier this week, said the deal would add between $5 and $9 a share.

"The merger represents the single best strategic alternative for our respective companies and is the strategy most likely to deliver increased value to our respective shareholders," the filing says.

The Palo Alto, Calif.-based company, which is in the midst of a boardroom tussle over the acquisition of Compaq, says it would pay millions of dollars to retain certain Compaq and HP executives after the merger.

Annual cost savings for the new company are expected to be at least $2.5 billion by the middle of the combined company's 2004 fiscal year, and it is believed to be able to generate operating margins of 8 percent to 10 percent by fiscal 2003, after anticipated cost savings.

HP president and CEO Carly Fiorina, who has come under fire for championing the merger, and Compaq CEO Michael Capellas, will not take part in the retention plan.

Compaq and Hewlett-Packard are trying to convince shareholders to back their proposed merger, announced Sept. 4.

Meanwhile, Walter Hewlett, the son of the company's founder--and owner of about 6 percent of Hewlett-Packard--is attempting to sway shareholders to vote against the plan, arguing that it would hurt stockholder value.

The chances of the merger going through diminished in December when family members of the founders, who own a combined 18 percent stake, said they would vote against it.

Hewlett has said that HP management had negotiated a contract that required unanimous board approval and that he had been advised by the company's lawyers that he could vote for the merger in his capacity as a director, while opposing it as a shareholder.

Walter Hewlett and company spokespeople could not be immediately reached for comment.

Benefits For Officers

According to the filing, several HP and Compaq officers may receive big sums of money to stay with the new company if the merger, expected to be completed in the first half of 2002,succeeds.

"[These include potential retention payments to ten HP executive officers (excluding Ms. Fiorina) of up to $33.1 million in the aggregate, and potential retention payments to seven Compaq officers (excluding Mr. Capellas) of up to $22.4 million in the aggregate," the filing says.

Full payment of retention bonuses for each eligible officer who remains employed by HP through the second anniversary of the signing of the merger agreement, assuming that the merger is completed (in the case of HP), or through the first anniversary of the completion of the merger (in the case of Compaq), is other benefit being offered to executives.

However, the filling says HP plans to negotiate new employment agreements with Fiorina and five other executives with an expected initial term of two years.

"While the terms of these agreements have not been determined, HP currently expects the employment agreements to include increases to the executives' current salaries ... as well as the potential for a bonus that may be equal to or greater than the executives' base salaries,"' it says.

Stock option plans are also expected to be provided.

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