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HP steps up merger battle

In an effort to win votes for its pending merger with Compaq, Hewlett-Packard launches an ad featuring a photo of its first product. The ad asks: "What if we had stopped here?"

Hewlett-Packard launched a new ad campaign and gave federal regulators further details of its merger plans as it sought to strengthen its position in the hotly contested battle over its proposed marriage to Compaq Computer.

The efforts, made Wednesday, mark yet another move in the chess game between the two companies on the one hand, and Walter Hewlett on the other. Hewlett, the son of co-founder William Hewlett and an HP director, has launched a campaign to persuade shareholders to vote against the deal.

In an effort to shore up its vote among individual investors, HP launched an ad featuring a photo of its first product, the audio oscillator 200A. The ad asks: "What if we had stopped here?"

"Even now, some suggest we might stop at printers. But HP's ambitions have always been much greater," the ad's copy reads.

Hewlett--who has opposed the merger in part because of the focus it would place on the low-margin PC business to the possible detriment of HP's highly profitable printer operations--has previously said he would like HP to move forward through internal growth.

A spokeswoman for HP said that in addition to targeting individual investors, the ad looks to reach institutional investors.

"This kind of format allows us to present the facts directly to shareholders, and it's geared to shareholders across the board," said Rebbeca Robboy.

A new SEC filing
In HP's latest Securities and Exchange Commission filing, made Wednesday, CEO Carly Fiorina and Compaq CEO Michael Capellas noted that integration planning is ahead of schedule and reiterated their stance on the benefits of the merger.

In the past, HP had said it hoped to complete the integration planning process in early February. The companies expect, at the earliest, to put the issue to a shareholder vote in late February.

Robert Wayman, HP's chief financial officer, said the integration planning is running a week or two ahead of schedule.

In this latest filing, the companies rehash the need to meet the challenges that are arising from rapid changes in the technology sector. They also say that nothing other than a merger could provide the same level of strategic benefits and opportunities.

The filing details the financial benefits of the merger, forecasting an increase in HP's business operating margins to 9.2 percent under a combined company in 2003, from a negative 3.2 percent this year for HP alone. The filing further predicts an increase in services operating margins to 13.7 percent from 4.5 percent during the same periods. The executives note that a combined company would create a stronger entity with greater depth in the consulting industry and the business computing segment.

The details were expanded to give investors greater information than they have received to date, Wayman said. Profitability outlook for HP's various business segments with and without the merger were laid out, as well as details of the integration planning process.

See special coverage: Big iron: HP to buy Compaq The executives also reiterate their rebuttal to Hewlett's arguments against the merger.

"We believe his opposition to the merger is based on a static and narrow view of HP and the industry, selectively ignores the synergies of this transaction, relies on faulty financial assumptions, and analyzes and offers no alternatives to address HP's challenges and opportunities," states a letter to shareholders that is included in the filing.