HP and Compaq: the gloves come off

A successful conclusion to the HP-Compaq merger is looking even less likely today with rival sides starting to trade insults over whether the mega-merger should go ahead.

Walter Hewlett, son of HP founder Bill Hewlett, wrote to HP and Compaq management on Wednesday decrying the deal and said it would be defeated if it came to a shareholder vote.

But yesterday, amid speculation that Compaq was considering pulling out of the multi-billion dollar deal, Compaq's board responded to Hewlett's letter and made it clear that it was still 100 per cent behind the deal.

The directors said: "We believe that this merger is well worth the effort and that our employees, shareholders and customers will be better served in the long term. Therefore we will continue to vigorously encourage shareholders to vote in favour of the transaction."

The statement added: "We are confident that over the coming months, the shareholders of both companies will recognise the value of the merger and give their approval."

However, Walter Hewlett said he had experienced "enormous unhappiness" from shareholders about the deal and called on the two parties to bring the deal to a speedy demise.

He said this was indicated by the fact the two companies lost much of their value in the week following the announcement.

Compaq responded by saying the share price had recovered since then, indicating shareholder approval.

Hewlett further retorted by saying the share price only rose when shareholders thought the deal would be scuttled.

Today's news follows Rick Hackborn's resignation from his position in the Hewlett Foundation, after he called Walter Hewlett's opposition to the deal "ill-advised".

Last week HP's largest shareholder, the Packard Foundation, also objected to the deal. Between them the Packard Foundation and the Hewlett Foundation control 18 per cent of HP's shares - enough to make a vote very tight.

However, a shareholder vote is not likely to happen anytime soon. The deal has to pass regulatory scrutiny before shareholders get the chance to decide.

Opposition to the deal has been largely based around the fact that it merely dilutes HP's profitable printer business, while increasing its market share in the largely unprofitable PC market.