Toward a more perfect union? HP and Compaq made it to the altar. Now they have to make the marriage work.
Hewlett-Packard spent the first half of the year trying to seal its deal to acquire Compaq Computer and the second half trying to prove it had made the right decision.
The company began the year in a dogfight with opponents of the deal--led by board member Walter Hewlett--who seemed to have the upper hand. But HP won a key endorsement from Institutional Shareholder Services in March, which seemed to turn investor sentiment in its favor. At a special shareholders meeting on March 19, HP declared victory--only to have Walter Hewlett take it to court, alleging that the company his father co-founded had improperly induced Deutsche Bank to vote in favor of the deal. When all was said and done, though, HP narrowly won shareholder approval.
The first days of the merger saw a slew of announcements, with HP unveiling product plans and a combined Web site immediately. Soon enough, stumbling points emerged, such as a spat between the company's IT department and its services organization, both of which wanted control over the company's internal technology. HP also raised its estimates for job cuts from 15,000 to more than 17,000.
Strong financial reports and aggressive cost-cutting eventually helped HP overcome some of the skepticism that greeted the deal. In particular, analysts seemed pleased that the company was able to narrow its losses in both the PC and enterprise computing businesses during the quarter ended Oct. 31.
Nonetheless, doubts surrounding the deal remain, including whether HP can stem losses of market share and whether it can avoid alienating its resellers as it tries to grow its direct sales to customers.
Also, with the November departure of President Michael Capellas, it remains to be seen whether CEO Carly Fiorina might be taking on too much responsibility by not replacing her second in command.