Tech Industry

After the HP vote, the hard part begins

CNET talks to Compaq executive Mike Winkler hours after the HP shareholder vote. After hearing the angry voices of the opposition, he knows the challenges are just beginning.

Listening to the angry voices opposing the proposed acquisition of Compaq Computer during Hewlett-Packard's shareholder meeting Tuesday morning, Mike Winkler got a good idea of what he's going to be up against in coming months.

Before HP announced that shareholders had voted narrowly in favor of the merger, rancorous retirees and bitter employees packing the Flint Center in Cupertino, Calif., registered their sharp opposition to the controversial $20 billion deal.

A much warmer reception is expected Wednesday, when Compaq shareholders will vote during their shareholder meeting in Houston. But any lingering good vibes won't do much to ease the complexity of the job ahead for Winkler, who runs Compaq's PC, server and storage operations.

Winkler will become one of the top five vice presidents at the newly merged HP. Among his other assignments after the completion of the deal, Winkler will be called upon to make good on management's argument that this controversial merger will result in some $2.5 billion in savings.

That's no easy task. The depth of the opposition symbolizes the tremendous challenges facing Winkler and other executives responsible for integrating two companies, two brands and two very different corporate cultures.

CNET talked to Winkler a few hours after the HP shareholder vote.

Q: I've never seen a shareholder meeting where the crowd was so animated that it booed and gave multiple standing ovations to rival factions. What was your gut reaction to the event?
A: We're all very pleased. It appears the momentum that was taking place as people understood more and more about the wisdom of the merger was reflected in the final vote-taking.

How do you feel about Walter Hewlett, the ringleader of opposition to the merger and the son of HP co-founder William Hewlett? Do you and other executives just wish he would shut up?
I think Walter legitimately raised issues he felt were appropriate from his standpoint, and they led to additional scrutiny beyond what this merger would have received--including scrutiny of Compaq. Frankly, we appreciated the opportunity for the merger story to get far more press and far more approval by evidence of the final vote than it would have otherwise. He was a positive force in some ways.

Does the animosity of HP shareholders scare you? Is it a sign of how tough your job will be in integrating two cultures and getting beyond the merger itself?
I've had the pleasure of being a sponsor for a number of integration teams and have had the chance to see Compaq and Hewlett-Packard employees working together on a day-to-day basis. I have to say that I'm gratified to see how they not only overcame cultural differences but played on each other's strengths in such a short period of time. The progress we've made so far on the integration front is a true testimonial and a proof point on how the cultures will meld, and how...once uncertainties surrounding the merger are done, we will all pursue the task at hand.

Roughly 70 percent of mergers fail, in that the newly merged company doesn't deliver more shareholder value than both companies did before the merger. How will HP and Compaq avoid this fate?
People refer to tech mergers that haven't been successful in the past. But I think the tech market is at a much more mature state than when those mergers were conducted. This is not a merger of diversification but consolidation. In a consolidating market, there are two to three large companies that survive and are profitable, and the rest don't survive or they have niche positions. We're going to see that's exactly what happened to this industry, and the HP-Compaq deal was a harbinger of things to come.

The other thing is that mergers take a tremendous amount of integration effort. The lack of success of many previous mergers is that they didn't offer up their best people on a full-time basis to achieve the value they forecast. But HP's put a superb integration task force together. I'm not worried about capturing the value we've predicted.

This merger seemed to spiral beyond HP, Compaq and even the computer industry, becoming a sort of referendum on HP CEO Carly Fiorina--and even on women executives in general. How did this happen, and how do you get beyond it?
Yeah, the merger took on a little bit of a life of its own, even though Carly went out of her way to focus on the business issues--as did Walter, by the way. A little of the personalities did come into play. But you have to admire the tenacity that Carly demonstrated during this proxy fight. Many thought in the beginning that when the families came out against this, the fight was over. But it doubled her resolve...You can see her bringing that kind of tenacity to the merger and integrations, and it gives me a heck of a lot more confidence that she'll be successful with this.

And by the way, if this were a referendum on Carly, you'd have to say that it's a pretty positive one. If you take out the family's votes, the other shareholders will have approved this by a 2-to-1 margin. That's a darn significant endorsement.

One of the biggest bugaboos in any merger comes after the initial integration push when key executives resign because a person from the other company has taken over their responsibilities. Are you bracing for mass defections?
We have taken great pains in our integration selection process to choose the individuals who will lead the new organization. We believe we've taken steps to ensure they'll want to remain with the company and fulfill those positions. You won't see a lot of unforecasted attrition as a result of the merger.

You've said the combined company will eliminate as many as 15,000 positions. When and how will that happen?
Carly said we were making rapid progress on identifying those positions. Most would be accomplished within six to nine months, and we would begin the process relatively quickly.

If I were an HP or Compaq employee, what characteristics would make me most valuable in the new organization?
In either company, the ultimate survival and prospering of employees depends on producing business results. It's been true in both companies, and I don't see that changing. I don't think either company is very political or particularly bureaucratic; you're not going to see the turf wars that come from some large companies that merge. I think it will be very much a meritocracy, with the successful employees being those that achieve results for the company.

Compaq's own shareholder vote will be Wednesday at 2 p.m. Central Standard Time. How do you think it will proceed?
It will be a relatively docile meeting, certainly, comparatively. We have extremely strong support for the merger from our customers and employees, and we've had that from the beginning.

Why was the merger so much easier to swallow for Compaq shareholders? Is it entirely because of the premium that HP offered to acquire the smaller rival?
The premium wasn't a significant issue. Most people would say Compaq stock is undervalued given the strength of the company, the financial turnaround and our market position...I think people here just see that you need to have a really strong, industry-leading company, and to combine it with another strong, industry-leading company, in order to go after the IBMs of the industry. It enables us to be a true strategic partner rather than just a vendor. Now we're almost de facto a partner with everybody, and it puts us in a different league from the box pushers like Dell, for example.

Why didn't HP shareholders see it that way? Did it have to do with Walter as a ringleader of the opposition?
I think we did benefit by not having a family who was involved, stirring the pot from a negative standpoint, so people could focus on the positive aspects instead of on a constant barrage of negativism.

So you're not steeling for any surprises on Wednesday in Houston--other than an unforeseen natural disaster?
A natural disaster--heaven forbid!