"Hewlett Packard and Compaq:
Merger Dilemmas"

   Recent news reporting the eminent merger between Hewlett Packard and Compaq has stirred up much of a debate. The major question is whether that merger is really necessary at all for these two prominent corporations.

   Since the bubble crisis for internet stocks and the attack on the US during early September 2001, consumers have been scaling back their spending. The world airline industry was the hardest hit with the blink of bankruptcy, where internet corporations trying to claw back to its own feet were set back by the major blows of those events. Consumer confidence was at all time low in the US and else in the world.

   In the March Quarter, the recovery of world economic confidence is building up, especially in the US. This would be good opportunity for many corporations to restructure their own power base to consolidate their new changing environment in order to stay competitive at least in their own industry. At least this is what the proposed merger between Hewlett Packard and Compaq is trying to convince its audience. HP proposed a buyout of Compaq for the price tag of US$22 billion. HP shares took a dive last week for more than 30% of its share values. The investors and market took a negative view on this merger.

   The increasing rivalry between the management board, its stakeholders and communities is evident. Leading the management board by CEO Carly Fiorina is trying to settle the deal with Compaq. On the other hand, leading the stakeholders by Walter Hewlett is arguing against the proposed merger stating that the finished merger will do more harm to its core businesses. The intensified fighting between the management board and its stakeholders and some dissidents in HP management board is on the increase. Both HP and Compaq employees have raised their concerns about the possible losses of their jobs after the merger. This highlights very real dilemmas in any merger.

   If the proposed merger is going ahead, surely the board will receive a huge sum of compensation payout of more US$115 million and at least 25,000 employees are likely to be out of jobs as a result of the merger. Corporate governance, executive compensation and agency problems have been questioned by many analysts and the media. The coming week is expected to reveal the outcome of the merger. The winners and losers of the merger and acquisition, namely the board and shareholders would become more apparent.

PHOLSENA Souliphone.