_____Washtech Archive_____ • Court Won't Block HP Merger (The Washington Post, May 1, 2002) • Seeking Support or Offering Bribes? (The Washington Post, Apr 26, 2002) • HP Executives Deny Withholding Data (The Washington Post, Apr 25, 2002) • HP, Compaq Misled Shareholders, Lawyers Charge (The Washington Post, Apr 24, 2002) • HP Facing Pair of Federal Probes (The Washington Post, Apr 16, 2002) • Victory Claimed on Merger (The Washington Post, Mar 20, 2002) • Merger War Waged From The Stump (The Washington Post, Mar 16, 2002) • HP Chief Lobbies for Compaq Deal (The Washington Post, Feb 26, 2002) • Hewlett-Packard vs. HP (The Washington Post, Dec 9, 2001) _____Web Special_____ • HP-Compaq Merger Timeline E-Mail This Article Printer-Friendly Version Subscribe to print edition

By Mike Musgrove and Ariana Eunjung Cha
Washington Post Staff Writers
Wednesday, May 8, 2002; Page E06

After spending months in an all-out effort to convince shareholders of the merits of acquiring Compaq Computer Corp., Hewlett-Packard Co. set out yesterday to prove that the deal was worth it.

Chief executive Carly Fiorina, challenging the notion that big high-tech mergers often fail to realize their promise, said she looked forward to building the business. But she cautioned that any gains would be tempered by the recent slowdown of the tech sector.

"This is an industry that will be characterized by slowing growth going forward," Fiorina said. She added that the information technology industry "will never return to the heady days of 20, 30, 40 percent growth."

Yesterday, HP officials launched the merged company, and company executives outlined how they would reorganize product lines.

Rather than cutting one of its lines of consumer computers, HP will continue to sell both the HP Pavilion and Compaq Presario lines. But on the business computer side of the market, the company will phase out the HP brand in favor of Compaq.

Compaq's popular handheld, the iPaq, will remain, but future models will be called the HP iPaq Pocket PC and will incorporate technology from HP's handheld, the Jornada. The Jornada will be phased out by the end of the year.

HP's chief financial officer, Bob Weyman, said the new company dominates the market for servers, external storage and personal computers. Weyman said the company will save $2.5 billion by combining businesses and laying off 15,000 workers to eliminate redundant jobs and streamline operations. The merged company's stock closed up 19 cents, or 1 percent, at $18.41 yesterday.

It took several months for Fiorina and former Compaq chief executive Michael Capellas to win the approval of shareholders -- and they won by the slimmest of margins in HP's recent shareholder vote.

"I believe the best teams are forged during the most difficult times," Fiorina said. The level of acrimony generated by the battle for shareholders, led by members of the Hewlett and Packard families who opposed the deal, made the Compaq acquisition was one of the most closely scrutinized mergers ever.

As a result of the opposition, there continues to be extraordinary pressure on Fiorina and Capellas to demonstrate that the deal was a good idea.

"The difference between this merger and all previous mergers is they have to show positive results within a year," said Martin Reynolds, research fellow at Gartner. "There's no grace period."

Sunil Reddy, portfolio manager for Fifth Third Technology Fund, said the "wild card" in the equation is whether the two company cultures will be able to meld successfully.

"Integrations are never easy," said Charles Elson, professor of corporate governance at the University of Delaware. "But when you throw in the fact that a good chunk of the employees and customers aren't happy about the merger, it's that much harder."

Still, some analysts yesterday said they were impressed by the amount of homework the company has already done to start the integration.

"I actually think the transition might be smoother than anybody expected," said Tim Bajarin, an industry analyst at Creative Solutions in Campbell, Calif. "They are much farther along on the integration process at this point than any merger I've ever seen -- and they can thank Walter Hewlett for that."

Musgrove reported from Washington; Cha, from Cupertino, Calif.