Although it plans to lay off thousands of workers if its merger with Compaq goes through, Hewlett-Packard is also offering hefty bonuses to some 6,000 key employees.
In a filing Monday with the Securities and Exchange Commission, HP said it would offer the eligible managers and workers a payment equal to half their salary plus a "target bonus." The money would be payable in two installments, the first upon closure of the deal and the second a year later.
HP is estimating the combined company's revenue will decline by less than 5 percent. The company also reiterated its belief that the cost savings, excluding the 5 percent revenue loss, equates to $5 to $9 a share in value.
If all eligible employees took advantage of the deal, HP estimates it would pay out $168.5 million for each installment. If the merger does not close, no payments will be made under the program.
Details of the bonuses came in a revised, but not final, version of the proxy statement HP will eventually send to shareholders. The company filed an initial draft of the proxy in November.
In Monday's filing, HP also tried to strengthen its financial case for the merger by further outlining the business implications of the deal. The company argued that the $2.5 billion in cost savings it believes are achievable would mean the combined company would have to lose nearly 25 percent of its revenue to offset the value of the cost cuts.
An HP representative said the company called attention to the bonuses because it wanted to make clear that it is trying to avoid a typical pitfall of mergers: losing highly valued employees amid the uncertainty created by the deal.
"This will help retain key employees in the new HP," the representative said.
Compaq has a similar program for its workers, offering $242 million in retention bonuses over two years to an unspecified number of non-executive employees.
HP and Compaq, which have both laid off thousands of workers in recent months, have said they plan to cut 15,000 more jobs once the deal is completed.
When all is said and done, the battle over the merger will come down to a war of colored paper.
HP will be looking for shareholders to send in white cards, indicating a vote of approval, while opponents of the deal--including board member and Hewlett family heir Walter Hewlett--will be seeking green cards, indicating opposition to the deal.
Since the merger was announced, on Labor Day 2001, the proposal has come under attack from a number of parties, including descendents of HP founders William Hewlett and David Packard. These parties represent about 18 percent of HP's shares.
Walter Hewlett, son of William Hewlett and an HP board member, has said he will solicit votes opposing the deal should HP put the matter to a shareholder vote. HP's largest shareholder, the David and Lucile Packard Foundation, has announced its opposition to the deal, as have David Woodley Packard and two of Hewlett's sisters.
HP took pains in the filing to urge shareholders to vote their shares and outlined the procedure for changing their vote to support the merger. Shareholders may send in as many cards as they choose, although only their most recently dated proxy card will count as their vote.
"The HP board of directors urges share owners to sign, date and return each white proxy or voting instruction card promptly," the company said in the filing. "The green proxy cards are being sent to HP share owners by a dissident group soliciting proxies against the proposal. The HP board of directors urges HP share owners to discard any green proxy or voting instruction card sent by the dissident group."
HP needs the support of a majority of votes cast either by proxy or at the special meeting of shareholders, which is scheduled to take place in the first half of the year. The company also needs shareholders representing at least half the company's shares to cast a ballot.
In addition, the deal requires regulatory approval as well as the support of the majority of Compaq shareholders.
In the filing, HP tries to undermine its sharpest critic, Walter Hewlett, by noting that he was missing from three key meetings in July at which the board deliberated about the deal. For part of one of the meetings in question, Hewlett was performing in an orchestra at the exclusive Bohemian Grove in Monte Rio, Calif., according to sources.
A representative of Hewlett noted that the board knew he would be unavailable for part of that meeting and refused to reschedule the discussion of the Compaq merger. For another meeting in question, the representative said, Hewlett provided a telephone number at which he could be reached, but he was never contacted.
A source close to HP said that Walter Hewlett was participating in a bike race in Lake Tahoe during the July 10 meeting and that details for the meeting were available via fax, phone, e-mail and the company's Web site for directors.
"This should be about shareholder value," said the representative of Hewlett. "We believe the proposed Compaq merger will destroy shareholder value for both the short and long term."
Meanwhile, the companies continue to make headway toward securing regulatory approval. The European Union is expected to issue an opinion or statement by Jan. 31. Under EU guidelines, the organization will accept or reject the merger by that date, or request further information, according to a Compaq representative. Canadian regulators approved the merger, and the two companies are in the process of seeking approval from the U.S. Federal Trade Commission as well as from Australian regulators.
The just-disclosed bonuses are in addition to previously announced retention bonuses offered to top executives. The companies said in November that both Carly Fiorina and Michael Capellas turned down their bonus offers. Capellas' payment would have totaled $14.4 million, while Fiorina's would have been $8 million.
HP also said Monday that it has agreed to provide 10 of its executive officers with certain benefits if they are terminated without cause or resign with good reason, such as a reduction in pay, within two years after the merger is completed. Any of these executives would be eligible for a payment equal to 1.5 times the executive's base salary and target bonus as well as vesting of stock options and continuation of certain health benefits.