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Capellas: Compaq will survive

Capellas: Compaq will survive

If the Titanic-proportions merger between Compaq and Hewlett-Packard hits an iceberg, Compaq's heart will go on.

That's the message Compaq CEO Michael Capellas relayed to employees in a memo sent on Friday. Capellas wrote that he still supports the deal with HP, but that Compaq is also well positioned to on its own meet the goals that the merger is supposed to help the company achieve.

Those goals are to extend Compaq's capacity to provide products and services to large corporations, to turn Compaq into a larger service provider capable of competing with IBM's Global Services division, and to improve the bottom line of Compaq's PC business, while staying on top of innovation in new technology areas.

"But this isn't just about the merger. This was also the direction we set in June," wrote Capellas. "Regardless of the circumstances -- whether we are part of the new HP or a standalone company -- I am confident in our ability to achieve these objectives."

"Our responsibility is to maintain a pragmatic view of our business and a clear focus on the future," the Compaq CEO wrote to his employees.

The memo was sent in response to a decision on Friday by the David and Lucile Packard Foundation to oppose the merger, a stock swap deal which was valued at $US25 billion when first announced. The foundation owns a 10.4 per cent stake in HP and is considered by many to hold the swing vote in the merger.

"We continue to believe that the merger is in the best interest of shareholders, employees, customers and partners," Capellas wrote, adding that Compaq and HP are "disappointed" by the decision of the foundation and that employees can expect more detailed information on "the situation" in the coming days. "The best thing we can do now is maintain our positive momentum in the market."

If the decision to abandon the merger plans is made, it will come "in another few weeks", according to Thomas Perkins, a member of Compaq's board of directors, cited in The Wall Street Journal on Tuesday. "If it drags on for months and months and months, it's not good for both companies," he said.

Compaq could ask for a preliminary tally of HP shareholders that support the merger, and insist on cancelling the deal if HP can't show it has enough votes, The Wall Street Journal wrote, quoting an unidentified source close to the Compaq board.


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