HP-Compaq Merger Still Causing Discord

The tale of Hewlett-Packard's acquisition of Compaq Computer is one of intrigue, executive wrangling, and even allusions to castration, according to two authors who penned books on the topic.

With such a contentious acquisition process, it should come as no surprise that Peter Burrows, senior technology reporter at BusinessWeek magazine, and fellow author George Anders, senior editor at Fast Company magazine, came to differing opinions about the deal. The writers gathered at a Churchill Club event in Palo Alto, California, recently to discuss their new books--with the added twist of Ed Zander, former president and chief operating officer at Sun Microsystems, serving as moderator.

Burrows had less access to HP executives than his counterpart Anders and has titled his book "Backfire." He gave Carly Fiorina, chair and chief executive officer at HP, a C-minus grade for her performance as HP chief thus far. By contrast, Anders used the more favorable title "Perfect Enough" and gave Fiorina an A-minus for her work.

Dramatic Details

Some of the most compelling moments of the acquisition process, according to the authors, came as Fiorina pressured Walter Hewlett, the son of one of the HP founders, to drop his opposition to the deal. Hewlett led the campaign against the acquisition during a vigorous proxy battle.

"You have a controversial figure in Carly, and then you have a proxy fight that went on and on and kept on giving for about a year," Burrows said. "I think they were overconfident that [Hewlett] would shut up. He wasn't just going to vote his shares quietly."

Beyond the public battle between Fiorina and Hewlett, some of the lesser-known behind-the-scenes tales also made the story compelling, including a secret naming scheme used during the deal that caught former Compaq Chair and Chief Executive Officer and later HP president Michael Capellas off-guard.

Ancient History

Fiorina, who holds a degree in medieval history, chose Heloise as her code name for HP during the acquisition process, and Abelard for Compaq, referring to two 12th-century historic figures locked in a troubled romance.

Abelard, a teacher, and Heloise, his student, had a secret relationship that angered Heloise's uncle. The lovers had a child and were later married, but Abelard decided to keep the marriage a secret and sent Heloise to a convent. Her uncle didn't approve and hired helpers to castrate Abelard.

Capellas, now WorldCom chair, chief executive, and president, apparently did not do his homework and was unaware that Compaq was tied metaphorically to castration if the acquisition went through, according to Anders, who interviewed the former Compaq chief on the matter.

"His jaw dropped," Anders said. "He had never looked up the names."

Money Matters

Burrows added to the debate, saying that the lucrative retention packages offered to executives, most notably Fiorina, has had a damaging effect on HP's culture.

"Money is a big part of this story," he said. "I think it had a corrosive effect on the culture. Carly's package was more money than Lew Platt [former HP CEO] made in his career."

Burrows said that some members of HP management had lost faith in the company due to the merger and were content to wait for the close of the deal and then cash out.

"One source basically said, 'I have given up,'" Burrows said. "'I am going to take this [big package], and when this is over I will leave.' There are lots of people out there like that."

Zander took on the role of a reporter and spent much of his time teasing the authors for asking him "dumb questions" over the years, but added his perspective on the merger as well. In particular, Zander questioned both Compaq's and HP's decision to shelve their own server microprocessors in favor of a chip from Intel, saying that this move tarnished the companies' reputation as innovators.

"To me the enterprise guys really had a franchise there," Zander said. "I think that was a huge strategic mistake."

Financial Results

Burrows was particularly concerned about HP's most recent financial results, in which the company continued to benefit from cost-cutting actions but posted revenue totals below analysts' expectations.

"I don't think [the merger] is working," Burrows said. "I think the last quarter is really disturbing. Most companies get cost cutting for a few quarters, and then the question is can you get the revenue going again. HP is still shrinking at a pretty good rate."

Burrows felt that earlier stories he had written questioning the acquisition had triggered a tense relationship with HP. This led to him being cut off from Fiorina by the company, but the writer added that this might not have been such a bad thing.

"Carly has a pretty good reality-distortion field," Burrows said. "In some ways, I am happy I didn't have access to it."

Anders, by contrast, had high praise for Fiorina.

"I think she is clearly charismatic and determined," he said. "I think she is a remarkable politician."

Anders expects Fiorina to stay on as HP CEO for the next five to ten years. After she retires, Fiorina may enter the political scene and run for the U.S. Senate, Burrows added.