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The week in review: Merger in distress

It is hardly smooth sailing for Hewlett-Packard in its quest to acquire Compaq Computer, as family ties and shareholder concerns have created some choppy waters.

Steven Musil Night Editor / News
Steven Musil is the night news editor at CNET News. He's been hooked on tech since learning BASIC in the late '70s. When not cleaning up after his daughter and son, Steven can be found pedaling around the San Francisco Bay Area. Before joining CNET in 2000, Steven spent 10 years at various Bay Area newspapers.
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Steven Musil
5 min read
It is hardly smooth sailing for Hewlett-Packard in its quest to acquire Compaq Computer, as family ties and shareholder concerns have created some choppy waters.

Walter Hewlett continued his assault on the merger this week, saying in a letter to board executives that "unhappiness" about the deal runs deep. He urged both companies to scuttle the acquisition pact as soon as possible, adding that if it goes to a vote, the merger will probably be defeated.

On the other side of the house, the David and Lucile Packard Foundation have already expressed their concerns over the multibillion-deal, but HP may try to sway their votes. Some people close to the company say the foundation may be encouraged to sell some or its entire 10 percent stake to investors who would back the proposed acquisition. This situation remains highly unlikely, however.

Some HP employees who arguably have the most at stake are working to drum up support for the proposal. A petition has been circulating around the company, seeking to get names of co-workers who would be willing to state publicly their support for a deal.

Compaq's making its own defensive moves, too. The PC maker appears to be positioning itself in case the deal unravels. Compaq CEO Michael Capellas said in a memo this week that the company will remain true to its objectives--offering services and enterprise software and hardware--with or without the merger.

'Tis the season
With holiday shipping deadlines looming, online retailers discovered a little cheer as a record number of people--52.4 million--browsed online stores last week, up 50 percent from the same period last year.

Perks such as free shipping and in-store pickup of goods purchased online have helped draw people to the Internet. Although online sales are up overall from last year at this time, the rate of growth is leveling off. Online holiday retail and travel sales will reach $11.9 billion this season, up 11 percent from last year.

This holiday season, the best online shopping may be found off the Web. Several major retailers, including Gap and Kenneth Cole, are using online coupons to funnel customers to their brick-and-mortar stores instead of to their Web sites--a 180 degree change from the conventional wisdom that the best bargains are usually found online.

Online deals have swept through the Internet in recent weeks, getting passed along liberally to friends and family members via e-mail or by being posted on online message boards such as FatWallet and MyCoupons.com, sites that trumpet the latest great deals. But a surprising number of the coupons persuaded Web surfers to hit the "print" button and grab their car keys.

E-tail's biggest challenge seems to be coming now from the calendar, however. This time of year is typically the busiest for all retailers, both on the Web and off. But because of the added time it takes to ship goods to customers, many Web stores have to stop taking holiday orders several days earlier than their brick-and-mortar counterparts.

Amazon.com told customers that Friday was the last day that "standard shipping" will ensure goods arrive in time for Christmas. Now, Amazon customers will have to pay $3.99 extra for what it calls "Guaranteed Holiday Delivery." BlueLight.com, the e-commerce unit of Kmart, guarantees delivery by Christmas Eve for any goods ordered by Dec. 21.

Xbox marks the spot
One of the hottest items this holiday shopping season is Microsoft's newly launched video game console, the Xbox, and buyers should expect to pay a premium. When they have the game systems in stock, online retailers are offering them only in bundles with games and extra controllers--and they're charging at least $100 over the prices for the consoles themselves. Consumers can find consoles without games and extras on auction sites such as eBay, but they should prepare for a bidding war.

Doing its part to get the consoles to consumers, Microsoft said that it has shipped about 1.1 million Xbox units to retailers since its Nov. 15 launch. Microsoft added that it expects to ship 300,000 more Xboxes to retailers by the end of the month.

From its cutting-edge graphics processor to the video game industry's first built-in hard drive, the Xbox has been praised as one of the most technologically sophisticated game devices ever. But that's just not good enough for hardware and software experimenters who have been tinkering with the Xbox since the day it went on sale.

Excite@Home's aftershocks
A bankruptcy court judge approved $355 million in contracts between high-speed Internet provider Excite@Home and its cable partners. Under the agreements with Cox Communications, Comcast, Mediacom and other cable companies, Excite@Home will receive the money to maintain service through February and help switch customers from Excite@Home's network to the cable companies' own networks.

Those agreements are of little assurance to the 12,000 small-business customers that use Excite@Work service, as the broadband provider prepares to shut down or sell off its business department. The fate of Excite@Work has not been as clear, and the uncertainty has many customers shopping around for a new service, even before Excite@Work announces its plans.

The messy collapse of Excite@Home marks the end of an ambitious era, in which start-ups believed they could make millions of dollars on Internet service without actually owning the most critical pieces of the infrastructure themselves.

A string of bad luck and bad business decisions certainly contributed to the financial carnage, industry analysts say. But the almost perfect record of failure has a common thread: The profit is in the pipes, and these upstarts did not own them.

Also of note
Federal officials said new raids targeting Internet "warez" groups are planned following the largest U.S. crackdown on Internet piracy in history this week, including potential strikes outside the country...In a widely anticipated move, Microsoft filed a remedy proposal in its antitrust case that closely matches a settlement cut with federal and state trustbusters last month...Microsoft also released the first major collection of bug fixes for its Office XP business software and announced plans to update Windows XP to support two technologies left out of the new operating system: USB 2.0 and Bluetooth...When Intel's Pentium 4 comes to notebooks next year, consumers will discover a boost in computing power--and possibly an extra fan...The online advertising market may have seen its worst days, according to analysts and media executives, who say they are increasingly optimistic of a recovery by mid-2002...A 20-year-old Canadian found the world's largest known prime number using a 210,000-machine quasi-supercomputer stretched across the globe.

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