The Hindu : Corporate battle headed for showdown

Online edition of India's National Newspaper
Monday, Mar 18, 2002

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National

Corporate battle headed for showdown

By Anand Parthasarathy

KOCHI MARCH 17. It has become a Silicon Valley soap opera, with every day bringing a new plot twist, an innuendo hurled here, a rumour neatly fielded there. But like a good Hollywood thriller, this corporate battle too is headed for a showdown, scheduled for noon on Tuesday at Cupertino, in the heart of California's computer countryside.

That is when shareholders of Hewlett Packard — the global computer products and services giant — will vote on their board's proposal to acquire the major personal computer (PC) maker, Compaq, in a $25 billion deal that will be the biggest technology merger ever.

The deal first announced in September last, was cleared last week by the Federal Trade Commission (FTC), the American corporate watchdog agency — but important shareholders, including the sons and daughters of founders, William Hewlett and Dave Packard and the family charitable trusts they control, have announced their intention to vote against the merger, which they feel will weaken HP, the pioneer company in Silicon Valley (Hewlett and Packard began working in a garage in Palo Alto in 1939, making audio oscillators for the Walt Disney company). Their main argument is that HP's core competence in the printing and imaging business and its strong innovative strengths will be diluted by the acquisition of Compaq whose niche is the dicey, low margin, high volume, PC business.

The family shareholder's lobby is headed by Walter Hewlett, son of co-founder, William Hewlett, who died just over a year ago. He has been increasingly critical of HP's current CEO, Carly Fiorina, who was brought in a few years ago from a high-profile job with the communication giant, Lucent, to take the company into the 21st century. Her aggressive leadership — which has included some hard-nosed downsizing of staff — has made HP one of the few global IT companies that have reasonably weathered the savage recession in the industry and shown profit. But in the process, she has angered old-timers who say that the company was always run in the legendary ``The HP Way'' — a combination of ethical business, innovation and strong employer-employee bondage. Sections of the media accused her of substituting what it called ``Fiorina's Folly''.

For weeks now, the two sides have been waging an increasingly acrimonious proxy battle. Throughout February, the U.S.-based dailies such as The Wall Street Journal and USA Today, have profited from full page advertisements, where the `for' and `against' merger fronts have been slinging mud at each other, a process carried over from the special websites they have launched. Both have been wooing the undecided shareholder — and the pro-merger lobby had a small victory last week when the Institutional Shareholders' Service, an organisation that advises stockholders, came out with a recommendation supporting the merger. However, some leading pension fund managers who have invested in HP have declared their intention to vote `no' on March 19.

Analysts predict that the final vote could be a close-run thing — and as protracted as the infamous Florida recount drama of the Bush presidential election, because many proxies will come by post. The vote by Compaq shareholders scheduled in Houston, Texas on March 20 is, however, likely to be an uncomplicated `yes'.

Unusually for a distant business takeover saga, the proposed HP-Compaq merger will impact Indian consumers, at least marginally. As with every high-profile coming together of IT giants, the effect will be to reduce buyer choice, albeit fractionally. In 1998, Compaq acquired Digital Equipment Corporation, the company that pioneered the minicomputer in the 1970s. Digital which had a presence in India in the Unix and NT server market, has vanished, leaving only a software and services entity with its name. That was because, Compaq was also a competitor in Digital's space. Consumers here can expect the same thing to happen if HP does acquire Compaq.

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