Packard joins HP-Compaq family feud

Opposition to Hewlett-Packard's bid to buy Compaq gains ground as David Packard, son of the HP co-founder, backs the Hewlett family's decision to resist the deal.

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Opposition to Hewlett-Packard's bid to buy Compaq Computer has gained ground as David Packard, son of the HP co-founder, said that he would back the Hewlett family's decision to oppose the acquisition. see special coverage: Big iron: HP to buy Compaq

The moves deliver a significant blow to the planned $21.55 billion acquisition, announced in early September. Analysts say the deal now has a 50-50 chance of falling through.

On Tuesday, the Hewlett family, which owns 8 percent of HP, announced its opposition to the merger. Packard said in a statement, also issued Tuesday, that he agrees with the Hewlett family's decision.

"The merger comes down to one question: Which way does the David and Lucile Packard Foundation vote?" said Lehman Brothers analyst Dan Niles.

As family opposition to the deal gains momentum, HP's board of directors--with the exception of Walter Hewlett--reaffirmed Wednesday that it stands firmly behind the deal to acquire Compaq.

"The board thoroughly analyzed this transaction and unanimously concluded this is the very best way to deliver the value our shareowners expect," Dick Hackborn, former chairman of HP, said in a statement. "Today, I'm even more convinced of the power of this combination, particularly given the progress of our integration plans."

Compaq said in a statement that its board of directors met Wednesday and reaffirmed their support for the merger.

"The board is more convinced than ever that the merger serves the best interests of shareholders, customers, partners and employees," Compaq said in the statement.

David Packard is not part of the David and Lucile Packard Foundation, which owns 10.3 percent of HP's shares and could vote either way. A representative for that foundation said that it is conducting an independent analysis of the deal and that it would decide whether to endorse the merger after HP reports earnings next week.

But David Packard said that the Packard Humanities Institute, another family foundation that owns about 1.3 percent of HP stock, is extremely unlikely to support the merger.

"For some time I have been skeptical about management's confidence that it can aggressively reinvent HP culture overnight," Packard said in the statement.

HP stock watch
HP and Compaq announced a stock-swap deal worth $25 billion. Because of fluctuations in the stock, the value of the deal may change. This is the approximate value (20-minute delay):

He also criticized the logic of the merger plan for depending on massive employee layoffs of at least 15,000--probably more--which, he said, went against HP's corporate tradition. "For over 50 years, one of HP's fundamental corporate objectives has been to provide long-term employment for its people," he said.

Although analysts say the deal is likely to unravel, they have also suggested it could proceed with a different structure. "It is also possible for HP to change the structure of the deal, e.g., to include some kind of spinoff of the PC biz before the shareholder vote," Niles said.

News of the family squabble met a warm reception at one rival PC company.

"I don't know whether this announcement by the Hewlett family will change the merger combination," Dell Computer chairman Michael Dell said in an interview with CNET News.com Tuesday evening. "At a minimum, it just adds more confusion and uncertainty for both companies, which is only positive for Dell."

When it comes to products, services and support, Dell said, HP and Compaq are in a "hurricane of confusion...and we're the pillar of stability."

The turmoil regarding the deal pushed down the merging companies' stocks throughout the day Wednesday. By the end of regular trading, HP shares had sagged 63 cents to $19.18, and Compaq shares were down 51 cents, or 6 percent, to $7.99.

News.com's Ian Fried and Reuters contributed to this report.