S&P Cuts Hewlett-Packard On Compaq Merger Risks

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Standard and Poor's cut Hewlett-Packard's long-term debt rating three notches and short-term debt rating two notches because of risks arising from the computer and printer maker's proposed merger with computer maker Compaq Computer.

Palo Alto, Calif.-based Hewlett-Packard on Wednesday won Federal Trade Commission approval for the nearly $22 billion all-stock merger with Houston-based Compaq, a day after the Institutional Shareholder Services advisory firm endorsed the link-up. A Hewlett-Packard shareholder vote is scheduled for March 19.

S&P cut Hewlett-Packard's senior unsecured debt three notches to "A-minus," its fourth lowest investment grade, from "AA-minus," and its short-term debt rating to "A-2" from "A-1-plus." It warned of the possibility of further downgrades, which ordinarily raise borrowing costs.

"While the merger offers the scale and market positions in hardware that could lead to greatly improved profitability, the execution risks are significant," S&P analyst Martha Toll-Reed said in a press statement.

Moody's Investors Service rates Hewlett-Packard's long- and short-term debt "A2" and "P-1," each one notch above S&P's new ratings. Hewlett-Packard shares traded Thursday morning on the New York Stock Exchange at $20.04, down 14 cents.

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