"Like a lot of relationships, it just kind of collapsed," said a source close to the final negotiations. "There's no bitterness there or anything, just a resignation that it's over."
In a letter to Compaq CEO Michael Capellas, dated October 7, Shandwick CEO Scott Meyer explained that the two companies were moving in different directions but could likely remain friends.
"We could sense that we were losing the spirit of partnership -- along with management support -- that is vital to making a client-agency relationship succeed. Rather than fracture the relationship further, we believe it is better that we both simply move on," the letter stated.
This is just part of the turmoil for Compaq, which replaced its CEO earlier this year in a management shake-up and has undergone major restructuring as it attempts to expand beyond its core PC business into new areas. Recently Compaq and Shandwick found working together more difficult as Compaq grappled with its internal changes.
"Compaq isn't just a PC company anymore," said Compaq spokesperson Alan Hodel. "There's a new Compaq, and as they say, 'we're under new management,' so it was an appropriate time to make a change."
Computer companies use public relations agencies to spin their messages and get information about their products and services to news organizations. Before switching to HP, Compaq had been Shandwick's largest account.
Compaq had been pulling back business from Shandwick for months as the PC manufacturer reevaluated its need for high-tech PR and hired more staff internally.
"We have been examining this situation and our requirements in this area for some time, and we agreed it was a time for a change," said Hodel. "They are ending our 17-year relationship."
Sources close to Compaq said the decision to rely less on Shandwick was in part a financial one. PR agencies bill by the hour and can be more costly to maintain than in-house employees. Compaq, which is in the midst of a massive cost-cutting program under the tenure of CEO Michael Capellas, looked within the company for PR.
"Miller/Shandwick saw the writing on the wall," said one former employee, who asked not to be identified. "I wouldn't say they went looking for new business, but the HP opportunity was just too good to pass up."
The HP account came up for review unexpectedly in August when the company decided to shop around its business PC account. Alexander Ogilvy and Copithorne & Bellows split most of HP's system business, with BSMG Worldwide handling Pavilion PCs and Cunningham Communications handling high-end servers.
HP decided to bring the bulk of the PC business--including commercial desktops, notebooks, workstations, and PCs servers--under one roof. While Alexander Ogilvy and Copithorne & Bellows were early favorites, Shandwick appeared late as a dark horse in the race for HP's PC business.
Neither HP or Shandwick were available for comment, but the PR agency clearly wooed the PC manufacturer during presentations made in mid-September, said sources close to both companies.
Alexander Ogilvy had all but eliminated itself from the running for fear of jeopardizing its relationship with IBM, which it represents in Europe.
"You have to understand that Alexander only represented HP's NetServer and small business accounts," said a source close to the PR agency. "The expanded HP business would have been worldwide and that could have caused trouble with IBM."
HP chose Shandwick almost immediately and spent the following weeks finalizing a contract. The two companies signed the papers late last week.
"Shandwick is leaving a lot of money on the table by walking away from Compaq," said one source close to both companies. Shandwick's account with Compaq, which is much bigger than the deal with HP, is valued at about $12 million a year. The HP deal is about half that, said a source close to the company.
Officially, Compaq has not set a date for formerly severing its relationship with Shandwick, but "plans a period of transition," said Hodel. But sources close to HP said the company wants Shandwick in place by mid-November.
Alexander Ogilvy, which has worked on HP's account for about five years, and Copithorne & Bellows, on board for about 10 years, will wrap up ongoing HP business through the Comdex computer trade show, which is taking place in Las Vegas in mid-November. Their last day is November 30.
Compaq, meanwhile, continues to hire internal PR staff and evaluate options. "Don't expect Compaq to hire another agency soon," said a source close to the company. "Compaq is more interested in working from within to craft a message consistent with the new direction of the company."