SAN JOSE — With their $22.2 billion merger threatened, Hewlett-Packard Co. and Compaq Computer Corp. fired back Wednesday with a 50-page report detailing their reasons for the deal and criticizing leading opponent Walter Hewlett.
“In the words of Dave Packard, ‘In the fields of advanced and rapidly changing technologies, to remain static is to lose ground,”’ the document says. “Now is the time to take this decisive step to address the changes in our industry.”
The report, filed with the Securities and Exchange Commission, says Palo Alto-based HP and Houston-based Compaq need each other to become stronger players in business computing, Internet access devices and printing, and to save at least $2.5 billion a year.
HP’s fiscal 2003 pro forma earnings per share, the companies say, would rise 13 percent with the deal, creating value that exceeds the premium paid for Compaq.
Also Wednesday, an HP lawyer denied that the company’s top leaders are threatening to resign if shareholders reject the Compaq deal.
In a letter filed with the SEC, HP attorney Larry W. Sonsini told an attorney for Hewlett that such assertions are “incorrect and misleading.” Sonsini was responding to a letter from Hewlett’s lawyer that expressed concern over news reports implying top HP brass would step down if the Compaq deal falls through.
For one, Hewlett was upset because HP director Richard Hackborn told The New York Times that shareholders “will have to get a board and a management” to fix HP’s problems if the deal fails.
The fight over the merger has intensified in recent weeks, with Hewlett lobbying other shareholders to veto the deal and asking the companies to scrap it. Hewlett and Packard family interests with 18 percent of HP stock have lined up against the acquisition.
Hewlett believes the deal is too risky and would increase HP’s exposure to the weak personal computer market while reducing the role of its cash cow printing division. Other opponents such as David W. Packard have criticized HP for planning to lay off as many as 15,000 employees if the deal is completed.
The companies acknowledge that the combined HP-Compaq would lose revenue in the short term, but their report contends that Hewlett and his advisers greatly miscalculated the resulting effect on the company’s profits.
Robert Wayman, HP’s chief financial officer and a member of the board, said he was confident analysts and investors would respond favorably to the filing.
“This shows that if you put these two companies together, the result is a much stronger company both financially and competitively,” he said in an interview.
Without the deal, the companies said, they are stuck with weak operating models in some fields and are not in position to respond quickly enough to customers’ needs. They blasted Hewlett for having no real competing vision and said he has failed to understand the growth possibilities in key areas such as servers and data storage.
Hewlett believes the report wrongly singles out him out, spokesman Todd Glass said.
“Walter Hewlett is not alone in his opposition to the Hewlett-Packard-Compaq transaction,” Glass said. “The market has been very outspoken on this transaction. ... We believe it is HP’s filings that rely on faulty financial assumptions and analysis.”
HP also began running advertisements in newspapers around the country in hopes of winning shareholder support. The first shows one of HP’s earliest products, an oscilloscope, on one page and asks on the other, “What if we had stopped here?”
Hewlett-Packard shares rose 20 cents to $20.70 Wednesday on the New York Stock Exchange. Compaq fell 9 cents to $9.02.
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