Sons Blast Computer Merger

The sons of both Hewlett-Packard Co. founders lambasted the company's $21 billion plan to acquire Compaq Computer Corp., casting doubt on the already unpopular deal and challenging the leadership of chief executive Carly Fiorina.

HP's biggest shareholder, the Packard family foundation — which owns more than 10 percent of HP's stock — has not decided whether to support the deal. The $5 billion foundation has hired advisers to help determine its decision.

But in a move praised by unhappy HP shareholders, the family and foundation of co-founder William Hewlett said Tuesday they will vote their 5 percent stake in HP against it. The group was headed by son Walter B. Hewlett, who is a member of HP's board.

Later, the other founder's son, David W. Packard — who has 1.3 percent of HP stock and is not a director of the family foundation — said he was also opposed and didn't approve of the current management's strategy, according to published reports.

"For some time I have been skeptical about management's confidence that it can aggressively reinvent HP culture overnight," he told the San Jose Mercury News.

David Katz, president of Matrix Asset Advisors, which has large stakes in HP and Compaq and opposes the deal, said the Hewlett family announcement sent "a strong message to the board from a sizable shareholder that's got more stake than just their investment."

"We think it opens the door for the board to reconsider the transaction," he said.

But in a news release early Wednesday, all the other members of the HP board said they enthusiastically support the merger and "unequivocally support Carly Fiorina's leadership."

"The board thoroughly analyzed this transaction and unanimously concluded this is the very best way to deliver the value our shareowners expect," said Dick Hackborn, HP's former chairman and executive vice president. "Today, I'm even more convinced of the power of this combination, particularly given the progress of our integration plans."

William Hewlett and David Packard founded HP in a Palo Alto garage in 1938 with $538 of their own money and built it into one of the world's premiere technology companies. Hewlett died in January; Packard died in 1996.

The men are revered at the company — many people still talk about the days of "Bill and Dave," and their old offices are preserved exactly as they were decades ago, down to the funky yellow floor and the low-tech phones on their desks.

It was in that tradition-rich environment that Fiorina became the first outsider to lead the company when she was hired from Lucent Technologies in 1999.

She has come under intense criticism this year as HP's profits and sales have fallen. Wall Street has been sour on the Compaq deal since it was announced on Labor Day, knocking the value down from the original $25 billion.

But HP's board appeared unified behind her strategy until Tuesday.

Despite voting along with the other directors to givFiorina the green light to pursue the Compaq deal, Hewlett said he had decided that HP can create better value for shareholders without adding Compaq, with the uncertainty produced by the merger too risky.

He said HP would have too much exposure to the struggling personal computer industry and dilute its profitable printer business. He also said Compaq is too focused on lower-priced servers and support services, and he believes HP is better off concentrating on higher-end servers and outsourcing and consulting.

By Brian Bergstein