HP Buying Compaq for $20.3 Billion
By ALAN CLENDENNING, AP Business Writer
NEW YORK (AP) - Hewlett-Packard Co. and Compaq Computer Corp.'s $20.3 billion
merger (合并，并购）would make sense even if the computer industry hadn't taken such a
beating （挫败）over the last year, company executives say. But
sheer （纯粹的）survival is a big motivating factor.
Both companies have lost ground （衰落）in PC sales, there is a big overlap in their product lines that will translate into consolidation and thousands of job cuts, and a combined company would still lag far behind IBM Corp. in the lucrative
outsourcing （外部采购）and services market.
And while the merger carries risks ranging from antitrust concerns to difficulty
pulling off （努力实现，赢得）a massive integration, Compaq chairman and chief executive Michael Capellas said the
lousy （恶劣的）business climate gives the combination better odds of succeeding.
``It is easier to do when times are tough because you have impetus and drive to get you there,'' Capellas told reporters in a joint news conference with Hewlett-Packard chairman and chief executive Carly Fiorina.
The stock swap deal would create a giant manufacturer of personal computers, computer servers, printers and high-tech services with $87 billion in revenue.
Investors and analysts, however, had their doubts about the combination.
Shares of Compaq fell $1.27 cents Tuesday to close at $11.08, a drop of 10.3 percent. Shares of Hewlett-Packard plunged $4.21 to close at $19, an 18 percent decline. The value of the deal dropped almost $5 billion, from $25 billion when it was announced Monday night.
Some analysts questioned whether the two companies can achieve the huge cost savings they anticipate, and maintain market share while being forced to cut overlapping products amid a slump in technology sales.
``The combined company isn't going to address a larger market than they have today,'' said Martin Reynolds, research fellow at Gartner Dataquest.
Fiorina and Capellas first met in 2000 and had spoken informally several times until their talks escalated into merger negotiations earlier this year.
``For me it wasn't a eureka （我发现了！表达有重大新发现时的欢乐，see
Notes 1）moment,'' Fiorina said. ``It was gathering momentum.''
The two executives then engaged in merger discussions so secretive they didn't bring in investment bankers to help until a business plan for the new company was in place.
For good reason.
After Fiorina tried to stitch (缝合）together a deal last year to buy the consulting arm of PricewaterhouseCoopers for as much as $18 billion, negotiations fell apart after word of the talks was leaked to the press. On Tuesday, Fiorina smiled as she told analysts there were no leaks to the media about the Compaq deal.
If the HP-Compaq merger succeeds, Fiorina will lead the combined company and Capellas will be her second-in-command. About 15,000 overlapping jobs will be eliminated, leaving the combined company with about 135,000 workers worldwide.
Both Palo Alto, Calif.-based HP and Houston-based Compaq have been hard hit by technology sector
downturns （低迷时期）in the past year. Each had already imposed
layoffs （临时解雇，裁员）to deal with shrinking profits.
Compaq and HP are No. 2 and 4 in worldwide PC sales, but their combined total would surpass leader Dell Computer Corp., according to Gartner Dataquest. Compaq ranks first in worldwide server sales, while HP is fourth behind Dell and IBM.
Dell spokesman T.R. Reid said his company, which has increased its PC market share this year through deep price cuts and direct sales to businesses and consumers, wasn't worried about facing a new competitive threat. In fact, Dell shares rose 93 cents Tuesday, or 4.3 percent, to close at $22.31 on the Nasdaq Stock Market.
The new company will be called Hewlett-Packard and will keep its headquarters in Palo Alto, though it will maintain a substantial presence in Houston, where Compaq is based. The Compaq name will still be used for some products after the merger, but Fiorina declined to give details.
The companies are willing to make divestitures
（财产，权利等的剥夺）to see the deal through, she said, but did not
elaborate（详细描述）.
Fiorina said she plans to visit Europe within several weeks to meet with Mario Monti, Europe's top business regulator, to ease any concerns.
The European Commission rejected General Electric Co.'s proposed $41 billion merger with Honeywell International two months ago, claiming the combination would hurt competitors. It was the first time Europe had rejected a combination of American companies that had already been approved by U.S. regulators.
The U.S. Justice Department has no comment Tuesday on the Hewlett-Packard deal, said spokeswoman Gina Talamona.
The various antitrust reviews are expected to take six to nine months, and the merger is expected to close in the first half of 2002.
The new HP would be 64 percent owned by HP shareholders and 36 percent owned by Compaq shareholders. Capellas and four other Compaq directors would join HP's board.
HP and Compaq said the deal would save them $2.4 billion a year by 2003, but Reynolds, of Gartner Dataquest said that won't be easy. Both companies, he said, have long product lines that customers will not want to see
phased out（逐步淘汰）.
The new HP will continue to face short-term challenges as well. Revenue for the next two years is projected to dip by less than 5 percent, said HP's Bob Wayman, who will remain as chief financial officer.
Compaq lost $279 million in the most recent quarter; HP posted a net profit of $111 million in its last quarter, but that marked an 89 percent decline from the previous year.
In June, Capellas outlined a broad reorganization plan bringing Compaq's services division into the forefront in the company's work. Hewlett-Packard has moved in a similar direction under Fiorina, who has brought about a broad reorganization of the 63-year-old Silicon Valley institution since taking over in 1999.
Compaq was founded in 1982 by three executives who left Texas Instruments to design a portable computer that could run the same software as IBM's new PC.
Hewlett-Packard was launched in a Palo Alto garage in 1938 by the late William Hewlett and David Packard with $538 of their own money.
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AP Business Writers Brian Bergstein in San Jose and Jim Krane in New York contributed to this story.
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