HP and Compaq Pick A Date: March 19

by Timothy Prickett Morgan

The top brass at Hewlett Packard and Compaq have set a date for their much-debated $25 billion merger agreement: March 19. HP executives are in the middle of a proxy war with board member Walter Hewlett, the son of one of HP's founders, who originally gave his approval to the merger and then had second thoughts. HP chairman and CEO Carly Fiorina has been energetic and vocal in her support of the merger, which she believes will make HP a stronger company.

With the exception of Walter Hewlett, the current HP board of directors, which includes plenty of die-hard HP people as well as executives from outside of the IT industry, have backed the merger. Fiorina made a good case for the merger at LinuxWorld a few weeks ago, and just last week notified Wall Street that the company's first quarter results would substantially exceed analyst expectations. Back in mid-November, based on the poor state of the economy, HP said that it expected revenues in the first quarter to be down slightly from the fourth quarter, with gross margins and expenses flat compared to the fourth quarter. On February 4, HP said that revenues would be up slightly because of improved sales of PCs and printers--increasing dependence on the PC business is a bone of contention with those who do not like the HP-Compaq merger--and that expenses would remain flat as expected, but gross margins and earnings per share would beat the Wall Street consensus.

Fiorina and her management team will host its semi-annual security analysts meeting in New York on February 27, and that will be where HP does all the fast talking it can to try to convince stock holders and institutional investors that the HP-Compaq merger is a good idea, regardless of what the founder's sons say.

HP last week launched an advertising campaign and sent out a letter to HP shareholders to try to convince shareholders to see the merger Fiorina's way. You can read that letter by clicking here.

One last thought: There has been plenty of talk about how Bill Hewlett and Dave Packard would never do a deal that resulted in 15,000 people losing their jobs. That's easy to say, and hard to prove. While no one would argue that mass layoffs are something to be avoided because of the damage it does to people's lives and to the towns they live in, there is a probability that layoffs will be worse if HP and Compaq do not merge. If they do not merge, these two companies, who are doing business against each other and other competitors in markets with razor-thin margins, are going to have to cut costs and corners to survive. If HP and Compaq have to compete against each other, rather than work together, you can bet that the sum total of layoffs at HP and Compaq will be larger, not smaller, than that 15,000 figure. Either way, HP and Compaq are going to have to do something to reduce costs, and firing people is the quickest way to do that in a tepid IT market.