Packard son back in merger duel

HP-Compaq: A merger for survival? Carl Howe, principal analyst, Forrester Research, and Rob Enderle, analyst, Giga Research

Packard, who first announced his opposition to the deal in November, took out a full-page ad in Wednesday's Wall Street Journal criticizing HP CEO Carly Fiorina for the way she's pitching the merger.

"Ms. Fiorina, your recent advertisement misappropriates Dave Packard's words 'to remain static is to lose ground,'" Packard states in the ad. "As a professional marketer you know how to enhance your message by invoking the image of an admired person. But my father's quote has no relevance to your argument."

Although David Woodley Packard originally spoke out against the deal just one day after Walter Hewlett announced his opposition, it has been Hewlett, the son of HP's other co-founder, who has been spearheading the fight against the merger. Hewlett is waging a proxy battle to solicit votes against the deal and last week sent a letter of his own to HP shareholders.

An HP representative declined to comment on the ad from Packard, who served on the company's board from 1987 to 1999. HP is fighting to gain shareholder approval of the deal amid opposition from members of the Hewlett and Packard families and their foundation--parties that, combined, hold roughly 18 percent of HP's shares.

Packard's ad reflects the increasingly personal tone of the debate. Last week, the bulk of HP's board members wrote a letter to shareholders calling Walter Hewlett an "academic and a musician" with no plan of his own for HP's future.

HP has said it believes the deal will increase the value of HP shares by $5 to $9 apiece based on the $2.5 billion in annual cost savings the merger could eventually deliver.

However, Walter Hewlett on Wednesday released a financial analysis from two of his outside advisors that claims the deal will cut at least $4.50 in value from HP shares based on lost revenue.

HP assumes that revenue from the combined company will drop roughly 5 percent in 2004, while Hewlett's analysis puts the lost revenue at twice that level. At the same time, Hewlett's analysis makes the assumption that each dollar in lost revenue will result in 25 cents worth of lost operating profit, while HP's estimate is at 12 cents.

HP said the lower impact to profit margins is justified given that most of the lost revenue is expected to come from the PC business, which itself has lower profit margins.

HP has also been taking out newspaper ads making its case that acquiring Compaq represents the best alternative for HP and that the buyout fits within the company's storied traditions, known as "The HP Way." In some of its pitches, HP has quoted co-founder Dave Packard's words that "to remain static is to lose ground."

But in his ad, David Woodley Packard says that HP thrived for 60 years without making an acquisition on the same scale as the Compaq deal.

"You recall another of my father's favorite sayings: 'More companies die of indigestion than starvation,'" Packard concludes in his ad. "There is now a real danger that HP will die of a broken heart."