Features

With her strategy and possibly her job on the line, Hewlett-Packard Co. chief Carly Fiorina appealed directly to Wall Street analysts Wednesday for their support of the $21.5 billion purchase of Compaq Computer Corp., calling it vital to the company’s future. 

The acquisition, which would be the biggest in technology industry history, is the subject of a vicious proxy fight headed to a shareholder vote March 19. Though several big investors have come out against the deal, analysts say the race is too close to call. 

In an all-day meeting at a New York hotel that was broadcast over the Internet, Fiorina asked analysts to ignore the fervent opposition of dissident HP director Walter Hewlett. She spent most of her time detailing the deal’s projected financial benefits. 

She said HP will be able to offer more complete packages for corporate customers because of Compaq’s strength in personal computers, Windows-based servers, data storage and services. She played a video with pro-merger testimonials from big customers. 

“PCs are not a bad business,” Fiorina said. “PCs have the opportunity to be a great business. You just have to measure it by the right yardsticks.” 

Still, she also slammed Hewlett and fellow heir David W. Packard, who sponsored independent polls that found widespread employee opposition to the merger at two HP sites. 

She said both men are trying to mislead investors “because they cannot win this campaign on the substance.” 

“Don’t be distracted by the so-called ‘focus and execute’ plan,” Fiorina said, referring to the alternate strategy Hewlett proposes. “It is not a plan — it is a press release.” 

During a one-hour grilling by analysts at the end of the meeting, Fiorina refused to speculate on what would happen to her or the company if the deal is rejected, though she said her team would “go back and look at all of our alternatives again.” 

Befitting the closeness of the proxy fight, Fiorina sometimes sounded like a political candidate on the eve of an election. 

“Do we retreat into the past and surrender our future? Or do we choose to put all of this energy and effort and commitment to work so that we can lead and grow?” she said. “That choice now rests with our shareowners, and we look forward to your support.” 

The meeting featured presentations from other top HP executives as well. Chief financial officer Bob Wayman said HP’s pro forma earnings per share in 2003 could be $1.51 with Compaq, $1.35 without — a 12 percent improvement. 

That estimate actually is quite conservative, said George Elling, a Deutsche Banc Alex. Brown analyst who supports the Compaq purchase. Elling believes HP could earn as much as $2 per share next year if the deal goes through. 

Webb McKinney, the HP executive leading the integration effort, explained how the companies have been preparing to begin working together on April 1, assuming the deal is approved by shareholders and the Federal Trade Commission. 

Hewlett made a big pitch of his own Wednesday, filing a 48-page report with the Securities and Exchange Commission reiterating his position that HP is overpaying for Compaq and that integrating the companies is too risky. He also ran full-page newspaper ads. 

Several analysts said they give the deal a 50-50 chance of going through but added that the key development will be the report expected in the next week from Institutional Shareholder Services. 

The Maryland-based research firm advises investors how to vote and in some cases actually votes for them. Wayman agreed with some projections that as many as 40 percent of HP shares could be swayed by the ISS decision. 

That could be crucial because of the significant bloc of shares already lined up against the deal, notably Hewlett and Packard family interests with 18 percent of HP stock. However, some analysts say ISS will influence much less than 40 percent because of the contested and complicated nature of this proxy fight. 

“It’s not a clear case yet to the investment community on who could win,” said Ari Topper, an analyst with Merger Insight. “It could go either way.” 

Andrew Neff of Bear Stearns said he thought HP did a good job of presenting its case Wednesday but said shareholders still should take note of the fact that most large mergers don’t work out. Either way, he said, HP will face tough challenges. 

Shares of Palo Alto, Calif.-based HP fell 2 cents to close at $20.03 on the New York Stock Exchange, where shares of Houston-based Compaq fell 20 cents to $10.20. 

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AP Business Writer Alan Clendenning in New York contributed to this report. 

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On the Net: 

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

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