Exec: HP would keep strengths in Compaq deal

Brian Bergstein

Monday, Dec. 10, 2001 | 9:56 a.m.

SAN FRANCISCO -- Hewlett-Packard Co. can affirm its traditional principles and better position itself for the future with its much-debated, $25 billion plan to buy Compaq Computer Corp., the HP executive overseeing the complex combination said Friday.

Webb McKinney, a 32-year HP veteran, addressed a technology conference in San Francisco hours before the company's largest shareholder, the Packard family's charitable foundation, announced its opposition to the deal.

McKinney said Compaq would enhance HP's ability to define high-tech industry standards. The deal would double the size of HP's services business, add heft to its lineup of computer servers and improve the cost structure of its struggling personal-computer division, he said.

"We're not merging to see what that feels like, but to best serve customers," McKinney said. "It's about driving change in the industry."

Critics of the deal such as HP board member Walter Hewlett, son of co-founder William Hewlett, say Compaq, which is losing money, would too strongly dilute HP's profitable printing business. Walter Hewlett has been gearing up for a proxy fight over the merger by filing several critical reports with the Securities and Exchange Commission.

Other opponents have accused HP Chief Executive Carly Fiorina of losing sight of the company's core principles, the fabled "HP Way." Packard heir David W. Packard in particular was distressed by management's plans to cut 15,000 jobs after the deal closes.

But McKinney said the HP Way has always held that change is essential for the company, and he added that debate over it is nothing new. When HP stopped providing free doughnuts for employees in the 1980s, many people complained then that it was the end of the HP Way, he said.

"There are a lot of misrepresentations about Carly and the HP Way," McKinney said in an interview. "A lot of people come to HP on a quest for finding out what the HP Way is, like there's a tablet somewhere. The corporate objectives change every few years. It's always been an evolution. ... We will continue to change with or without the merger."

Although HP and Compaq must continue to operate as competitors and separate organizations until the deal gets shareholder and regulatory approval, McKinney and Compaq's chief financial officer, Jeff Clarke, are speaking daily and meeting regularly to plan the integration.

They have to consider such details as how much to invest in the telephone system. HP tends to communicate internally more by voice mail than e-mail, while Compaq is the opposite.

But McKinney shrugged off the criticism that most complex mergers fail, especially in technology. He said both companies are applying lessons learned in previous mergers.