Hewlett Family Opposes Merger With Compaq

The pending merger between computer makers Hewlett-Packard and Compaq was dealt a blow Tuesday after the family of William Hewlett said it would not support the union.

Hewlett, the co-founder and former president of the company, died earlier this year.

Hewlett’s children Walter B. Hewlett, Eleanor Hewlett Gimon, Mary Hewlett Jaffe and The William R. Hewlett Revocable Trust say that they intend to vote their shares against the merger if it were to come up to a vote before the shareholders.

The Trust, the Hewlett Foundation and the family members together own more than 100 million shares of HP stock or 5 percent of the company. Even though that is not enough to prevent the merger from taking place, the name alone could sway other shareholders or at least cause them to rethink the union.

Investors certainly took note of the news. Shares of HP stock jumped $2.31, or 14 percent, to $19.20 per share. Compaq’s stock, meantime, fell 72 cents to $8.27.

The all-stock transaction between Palo Alto, Calif.-based HP and Houston, Texas-based Compaq was originally valued at $25 billion and now is estimated to be worth about $18.4 billion.

“I firmly believe that partnering with Compaq will not give Hewlett-Packard what it needs most to create additional stockholder value – expansion of its printer and imaging business as well as the higher-end segments of its services and server businesses,” says Walter Hewlett. “The combination would dramatically increase Hewlett-Packard’s exposure to the unattractive PC business and dilute current stockholders’ interest in Hewlett-Packard’s profitable printer business. Given the lack of stockholder benefits, I believe the extensive integration risks associated with this transaction are not worth taking.”

Walter Hewlett, who serves as chairman of The William and Flora Hewlett Foundation, a trustee of the William R. Hewlett Revocable Trust and on HP’s board of directors, says he was advised by his legal counsel Cooley Godward LLP and his financial advisor Friedman Fleischer & Lowe LLC to make the decision.

In addition, Hewlett’s son says Compaq’s services business, which is more focused on support than outsourcing and consulting, is not the type of services business that HP should be seeking to grow.

Hewlett’s son also says Compaq’s business outlook has declined dramatically since the merger announcement, making the prospects for any benefits to HP from a combination even less likely.