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Sircam merger will ruin us – Hewlett Jr

Walter goes to war

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Walter Hewlett Jr has delivered a devastating 70-page rebuttal to the proposed Sircam merger between HP and Compaq.

The Schedule 14 notice was prepared by the San Francisco-based investment advisors Friedman Fleischer and Lowe, and debunks the official line of the HP and Compaq boards with a bombardment of statistics and historical data.

Hewlett Jr says the Sircam merger has already wiped $18 billion off the combined values of the two companies since August 31, and thinks the worst is yet to come.

Hewlett has already outlined his three main objections to the merger: he doesn't want HP's lucrative printer and imaging business diluted, it's risky and Compaq is the wrong company to grow HP's services business.

Mergers often leave the combined with less than it expected, argue FF&L, on behalf of Hewlett. Among the many precedents cited are HP's acquisition of Apollo in 1989 which saw Sun claw pole position in the workstation market away from the latter, and which ironically, resulted in Ed Zander leaving Apollo for Sun.

It cites research suggesting half of all mergers fail to produce any net gains.

And it makes much of former Compaq chairman and kingmaker Ben Rosen's now notorious comment, made in 1991, that "the main beneficiaries of mergers in the computer industry have been competitors".

In detail, FF&L stress the risks and only marginal gain that the merger would bring to HP. For example, they argue that much of Compaq's server revenue is at the low-end, which is vulnerable to Dell, and an area where margins are shrinking. Neither HP nor Compaq has rode the Linux wave as successfully as IBM or Dell, it points out.

Although FF&L praise Compaq's storage position, they point out that Q's $2 billion business added to HP's $1.2 billion storage business combines to less than 4 per cent of revenues for the combined Paqard.

But the most damning, and possibly damaging strike is against merging the services business. HP's Fiorina failed to buy PWC's services arm, and cites Compaq's as one of the prime reasons for the merger.

"Compaq and HP services combined look like Compaq and HP services alone," they note. The DEC and Tandem services revenue is "small and shrinking".

You can read the Friedman Fleischer and Lowe deliberations here.

Don't listen to them - they only work here

HP staff continue to oppose the merger by two to one, according to a survey carried out by, er... HP, and reported by USA Toady here. HP says it is "not representative," reports the Toady®

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