Hewlett-Packard shareholder Walter Hewlett Wednesday launched his latest offensive against the proposed merger between HP and Compaq Computer, saying large mergers between computing companies often fail. HP quickly countered with a statement that traced the benefits of some mega-mergers.
Hewlett, the son of one of HP's founders and a company board member, made a new filing with the Securities and Exchange Commission (SEC), detailing his latest objections to the proposed multibillion-dollar deal. Entitled, "Large Computing Mergers Have Consistently Failed," the filing traced problems associated with Compaq's 1997 acquisition of Tandem Computer Inc. and its 1998 acquisition of Digital Equipment Corp. (DEC). Hewlett also critiqued the 1986 union between Burroughs Corp. and Sperry Corp. to form Unisys Corp.
"HP's stated rationale for the proposed acquisition of Compaq is remarkably similar to the strategic rationale put forward for each of these failed transactions," Hewlett said in a statement on the filing. "Bigger did not prove better in any of these cases, and in each transaction, integrating the two large companies was a major stumbling block to the creation of stockholder value."
HP and Hewlett have engaged in a fierce, public battle over the merger. Although Hewlett once voted in favor of the deal, he later changed his position to oppose the merger and is the only dissenting board member. Hewlett, the Packard family and related organizations control close to 18 percent of HP's stock and plan to vote those shares against the deal in a vote expected to take place in March. Both Hewlett and HP have filed numerous documents with the SEC stating their positions on the merger.
Hewlett argued in his filing that large mergers between similar companies causes customers to flock toward competitors due to uncertainty about the direction product lines will take and disorder caused by the companies' reorganization. The IT industry, in particular, evolves quickly, which exacerbates these transition issues, Hewlett argued. In addition, he charged that financial benefits cited by management for mergers often end up below expectations after the deal is completed.
HP countered Hewlett's filing with a statement that charges he holds a "static view" of the technology industry in his report. The company claims that the technology landscape has changed since Compaq's acquisitions and that large mergers often succeed.
"This is precisely the time to do a merger of this magnitude because valuations are better, customers are placing major IT purchases on hold, competitors are in a holding pattern, and it offers time to execute and integrate," the company said.
HP has argued that the deal will provide benefits to its high-end hardware products, software business and services organization.