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Insiders saw survival in HP merger

Just four months after the acquisition of Compaq Computer became final, key executives from Hewlett-Packard and Compaq say it was the right call.

PALO ALTO, Calif.--Just four months after the acquisition of Compaq Computer became final, services chief Ann Livermore says she is convinced HP CEO Carly Fiorina made the right call. However, she wasn't always so sure.

"My initial reaction when Carly told me was, 'You've got to be kidding,'" Livermore told a crowd of Silicon Valley executives and marketeers Monday night at a gathering of the Churchill Club, a local civic group.

But the message eventually became clear, Livermore said. This was about survival.

Peter Blackmore, who now heads the enterprise systems unit for the combined company, said Compaq executives reached the same conclusion during a dinner at Michael Capellas' house in early 2001.

Mergers weren't the topic of discussion that night, but rather the broader topic of what to do when the high end of the market became more of a commodity as the PC already had. The more they talked, the more consolidation seemed to be the only answer.

Though Fiorina and Capellas were quickly able to convince the upper echelons of their own management, selling the deal to employees and Wall Street proved a tricky proposition, with HP securing shareholder approval by only the narrowest of margins after a brutal eight-month proxy fight.

Now a year after the deal was announced, many remain skeptical about whether merging will pay off. Both executives say the results to date validate their bosses' foresight.

Those who came looking for dirt--and there were plenty in the crowd--left disappointed.

"Not everything was perfect, but damn it the launch was good," Blackmore said.

HP hopes to communicate some of its success in an ad campaign set to begin this fall. The two executives hinted at what that may bring.

Livermore said that HP wants to put the image in customers' minds that HP has "the power to do almost anything" and is the company that businesses turn to for their toughest problems.

"We will put a lot of dollars behind the brand," Blackmore said. "We're also going to make it come alive by using customer experiences more and more."

Livermore even defended both the leadership and the compensation of Fiorina, the CEO who was named to a spot for which Livermore was considered a front-runner.

"I doubt many would have done as good a job," she said.

As for the fact that Carly is known for flying on corporate jets, Livermore noted that most fortune 500 CEOs do, as do many other HP executives.

"It's not just a Carly thing," Livermore said.

Asked what letter grade to assign HP's integration efforts, Livermore refused to be pinned down.

"I'd certainly give us a passing mark," Livermore said. "You have to be careful not to claim victory too easy."

Among the easiest decisions was choosing which products would survive and which would be phased out, Livermore said. In nearly all the cases the market share leader endured, with 95 percent of decisions made by last December, six months before the deal closed.

"The facts don't lie," she said.

The toughest integration issue, Blackmore said, is piecing together the internal IT systems of the two companies. That has "the longest tail" of all the animals that the merged company has to tame, he said.

Along with the fact that HP and Compaq have separate systems, the two companies also had different approaches to managing IT decisions, a disparity that has been a source of some tension.

News.com's Charles Cooper contributed to this report.