Features

EU Commission clears HP-Compaq merger

By Raf Casert, The Associated Press
Friday February 01, 2002

BRUSSELS, Belgium — European regulators on Thursday cleared the $23.7 billion merger of Hewlett-Packard Co. and Compaq Computer Corp., saying the planned marriage of rival U.S. computer makers does not raise competition concerns in Europe. 

A U.S. review of the merger is still underway. The deal also faces the considerable hurdle of shareholder approval, with critics including the heirs of HP’s legendary co-founders. 

Thursday’s decision means the EU’s antitrust office gives its blessing for the companies to move ahead and signals the EU will not launch a four-month investigation into how the deal may affect competition in Europe. 

“A careful analysis of the merger ... has shown that HP would not be in a position to increase prices and that consumers would continue to benefit from sufficient choice and innovation,” an EU statement said. 

The merger plan forced the EU Commission into its biggest European antitrust decision since it blocked the $46 billion bid by General Electric Co. for Honeywell International Inc. last summer. 

The in-depth probe by the European Commission would have been especially problematic for HP as it tries to rein in rebellious shareholders who oppose the deal, observers said. Instead, early clearance in Europe could help HP win over some shareholders. 

Some analysts downplayed the importance of the European decision. 

“The probability was very high that they were going to approve it,” said Charles Wolf, an analyst at Needham & Co. “It nudges up the probability of an ultimate win on part of HP in this battle with the family, but I don’t think it changes it dramatically.” 

Carly Fiorina, HP’s chief executive, said the announcement is “an encouraging step in the continuing process of satisfying regulators worldwide that this deal will provide a real stimulus for competition.” 

Compaq was equally pleased. 

“This is an important milestone, particularly given the significance of Europe to us,” said Michael Capellas, Compaq chairman and chief executive. 

Board member Walter Hewlett, the son of HP co-founder William Hewlett and the deal’s most vocal critic, said the merger is a “bet-the-company move that is not appropriate for HP.” 

In a statement, he noted few HP rivals raised objections during the EU’s review of the deal. 

“We are not surprised,” he said. “We believe Dell, Sun and IBM must be delighted at the prospect of a merger that would so greatly distract and damage two of their rivals.” 

A source close to the talks, speaking on condition of anonymity, said all sides were involved in tough negotiations until the last days, with Germany’s Siemens pushing hard to have the European Commission extend the investigation. 

Fujitsu-Siemens Computers is among the top 10 manufacturers of servers in the world and was one of the few companies to argue against the merger. 

HP and Compaq together would account for about 22-23 percent of the European market for personal computers, but around 47 percent of the market for more powerful servers and disk storage units, according to market researchers Gartner-Dataquest. 

Palo Alto, Calif.-based HP and Houston-based Compaq have said they would await regulatory clearance before setting a date for a shareholder vote. 

The merger is expected to result in about 15,000 job cuts at the combined company, HP officials have said. 

On Jan. 23, Fiorina told employees that as many as 36,000 employees might be at risk if the merger does not go through. She did not make any specific projections but noted they belong to divisions that lost money last year, according to a document on the meeting filed Wednesday with the Securities and Exchange Commission. 

“If you care — which I do, which we all do — about 36,000 people, you have to figure out a way to make money,” she said. “Because without profitable businesses, you cannot preserve jobs. You cannot continue to make contributions to communities. You cannot continue to invest in R&D. It is fundamental.” 

In Thursday trading on the New York Stock Exchange, HP shares closed up 15 cents at $22.11 while Compaq shares rose 36 cents to $12.35. 

——— 

On the Net: 

Pro-merger site: http://www.votethehpway.com 

Anti-merger site: http://www.votenohpcompaq.com