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With merger fight over, HP and Compaq ready for business

| Thursday, May 2, 2002

PALO ALTO, Calif. (AP) — Now that it finally appears nothing will stop their $18 billion marriage, Hewlett-Packard Co. and Compaq Computer Corp. plan to begin life together next Tuesday.

That means launching some complex and difficult tasks, such as hacking 15,000 jobs out of a 150,000-person work force over the next two years, and telling customers which product lines will survive and which will be phased out.

There are simpler issues to tackle as well. Because Houston-based Compaq is being acquired and Palo Alto-based HP is keeping its name, the companies have to make sure Compaq Web sites, building signs and paychecks now read "HP."

"We're ready," HP chief executive and chairwoman Carly Fiorina proclaimed last week while testifying in a trial over the merger in Delaware.

Because the deal has faced a hostile reaction ever since it was announced Sept. 3 — first on Wall Street and then in a bruising proxy fight led by former HP director Walter Hewlett — HP and Compaq have stressed that they are well prepared.

After years of competing against each other in several technology markets, such as personal and handheld computers, servers and infrastructure services, HP and Compaq put more than 1,000 employees on a "clean team" that could plan the integration without revealing sensitive information to their co-workers.

Their efforts are critical because this will be the computer industry's biggest merger yet. Many technology mergers have failed because the companies involved could not smoothly combine distinct cultures and sophisticated manufacturing, research and sales operations.

Most analysts will give the new HP at least six months to begin delivering on its financial promises, including that the acquisition will lead to $2.5 billion in cost savings and a 12 percent increase in earnings. Fiorina has said she would be disappointed if HP doesn't exceed its forecasts.

Analyst Martin Reynolds of Gartner Inc. doesn't expect measurements of the deal's financial success to become evident for about a year. But he believes HP needs to do as much as possible to quickly make it clear how the layoffs will be carried out.

"If people think they might get laid off, they might be out of a job, they tend not to respond," Reynolds said. "They need a clear definition of who's going, who's staying. Otherwise (HP) will have trouble getting their work force focused."

Such issues are especially important considering that independent surveys conducted during the proxy fight showed widespread unhappiness about the Compaq deal among HP employees. HP has not said when the layoffs will begin.

The deal surged toward completion Tuesday when a Delaware judge cleared HP of Walter Hewlett's allegations that its top executives misled shareholders about the merger planning and browbeat a big investor into supporting the deal. Hewlett said he would not appeal and would stop challenging the individual ballots from the shareholder vote that HP won 51.4 percent to 48.6 percent.

The vote total was officially certified Wednesday by IVS Associates, an independent proxy counting firm in Newark, Del.

The Securities and Exchange Commission and federal prosecutors in New York also have been investigating HP's actions in the proxy fight, but it's unclear whether those probes are going anywhere. Spokesmen for the SEC and the prosecutors refused to comment Wednesday.

HP shares fell 24 cents to $16.86 in trading yesterday on the New York Stock Exchange. Compaq rose 50 cents, nearly 5 percent, to $10.65.

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