At an analyst meeting here, HP bombarded Wall Street with quotes from tech luminaries supporting the deal on two large screens as a warm-up. As Fiorina approached the podium at the Grand Ballroom of the Hilton she asked, "How is everyone doing today?" The audience responded with an awkward silence.
Undeterred, Fiorina started one of her last pitches to shareholders before a March 19 vote amid mudslinging and an advertising duel with board member Walter Hewlett. Hewlett said in a filing Tuesday that Fiorina and Compaq CEO Michael Capellas stood to reap a windfall $115 million from a proposed compensation package if the deal were approved.
Fiorina painted a stark picture of the information technology industry, arguing that growth is slowing and companies will need scale to compete.
"The pure product era is over," she said. "The IT industry is consolidating to fewer, more capable players."
Fiorina said the IT sector would face slower growth, price pressure and increasing customer demand "with or without this merger."
HP executives also moved to put concrete numbers behind the cost savings involved with the Compaq deal. CFO Bob Wayman made the following projections in his presentation:
Annual cost savings of $2.5 billion, including $625 million in administrative and IT costs; $600 million in items such as purchasing and manufacturing; $250 million in procurement; $475 million in sales; $425 million in research and development; and $125 million in marketing.
Restructuring charges between $800 million and $1.2 billion to cover items such as severance, relocation and facility closures.
Earnings per share for the 2003 fiscal year for the combined companies at $1.51 a share, up 12 percent from the Wall Street consensus for HP's standalone earnings of $1.35 a share. The estimate is based on analysts' consensus forecasts for Compaq's calendar year 2003 of 49 cents per share, adjusted to HP's October fiscal year end. It excludes the impact of restructuring charges and noncash charges associated with acquisitions.
Taking Hewlett's criticisms head-on, Fiorina urged shareholders to focus on the key issues: market leadership, profitability, customer service and whether the companies can execute.
"Our opposition would like to distract you because they can't win this campaign on substance," she said. "Ask yourself, 'Why am I hearing this now?' Why didn't you hear this in the boardroom? They are trying to distract you with employee surveys in a small town in Oregon with 500 employees and half of them are retirees."
The CEO took aim at many of Hewlett's proposals and his "focus and execute" plan. "Don't be distracted by the focus and execute plan," Fiorina said. "It's not a plan, it's a press release."
Dismissing Hewlett's complaints about the merged company's PC business, Fiorina added that eliminating the PC business could lose accounts and hurt the HP brand.
While Fiorina and HP executives addressed analysts, Hewlett reiterated his opposition to the merger and provided a little more detail to his plans for the company. Primarily, he extolled the virtues of interim CEOs.
In a filing with the SEC, Hewlett said he would recommend replacing Fiorina with an interim CEO if the merger were voted down. HP has a "deep bench" of management to fill in, he said. Hewlett cited Apple Computer as an example of an interim CEO--Steve Jobs--stabilizing a struggling company. Jobs has since shed the interim title.
The meeting is largely designed to promote the company's acquisition of Compaq, which is being opposed by some institutional shareholders and several heirs of HP's founders. One of the major will be the recommendation of Institutional Shareholder Services, which advises money managers how to vote on proxies and other corporate governing issues. ISS is expected to make its recommendation before the March 19 vote.
HP has a daunting task; even assuming that most shareholders are split on the deal, HP still has 18 percent of votes against it. That's because HP's largest shareholder, the David and Lucile Packard Foundation, has said it would votethe deal, as have several heirs of the company's founders: David Packard, the Packard Humanities Institute, Walter Hewlett and two other Hewlett sisters, who own a combined 8 percent of shares.
Fiorina said HP has met with ISS and its affiliates to make its case. "We've gone through a very thorough process with them," said Fiorina. "We think we presented well and they've comprehended it."
Analysts and institutional shareholders, however, didn't seem swayed by the meeting. Many analysts and institutional investors declined to comment, adding they will remain quiet until the shareholder vote.
"I'm not convinced as of yet," said John Herndon, vice president for Aquila Management.
When asked what it would take to make him favor the deal, Herndon said he would need evidence of "intellectual horsepower that could rocket them (the combined companies) up to where a company like IBM is."
"I want to hear Compaq has a fruit basket to bring to the table, but I haven't heard that yet," Herndon said.
Xavier Rivera, an analyst for CDC IXIS, a French bank and pension fund, had a different take. He said he supported the merger before the analyst meeting and still does. "I hope the merger will go through," he said.