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Thursday, 6 September, 2001, 14:13 GMT 15:13 UK
Tough sell for PC giants merger
Michael Capellas, Compaq's chairman and chief executive
Michael Capellas has to convince investors of the logic of the merger
One of the world's biggest PC mergers may be running into trouble already.

Shares in Hewlett Packard and Compaq have tumbled since news of the their plans to join forces emerged earlier this week, amid shareholder scepticism about the value of the deal.

Carly Fiorina and Michael Capellas, the chief executives of HP and Compaq respectively, will try to win over shareholders in New York on Thursday, having fielded sceptical questions in Boston a day earlier.

Both companies' boards have approved the merger, but it still needs to get the green light from shareholders and regulators before it can go ahead.

Shareholder fears

Speaking to investors in Boston, Ms Fiorina said Wall Street should not have been shocked by the deal.

"These companies fit together like a zipper," Hewlett Packard's Carly Fiorina said.

But so far this conviction appears to have fallen on deaf ears.

"I think most people already determined this deal was a failure, judging by the price of the two stocks," said Kevin Rendino, manager of a Merrill Lynch fund.

With several months to go before shareholders vote on the deal, the two companies have plenty of time to convince them to change their mind.

Market votes "no"

However perception is everything and from share price alone, it does not look good.

Valued at $25bn ( 17.5bn) on Tuesday, the deal is now worth just $19bn.

Even those who see the merger logic as presented by HP and Compaq think the companies have set themselves tough goals.

They aim to cut costs by $2.5bn over the next three years.

"They've got to cut out half the new company," said Gartner industry analyst Martin Reynolds


Part of the problem is that there is generally increased scepticism about the ability of mergers to create long-term shareholder value.

In the past, turning a flashy mega-deal into a lasting success has proved frustratingly tricky - just ask DaimlerChrysler or AOL Time Warner.

Markets are also concerned about HP spending money at a time of gloom for the computer industry, and by indications from the firms that their revenues could dip over the next couple of years.

HP's Fiorina has tried to allay these fears, stressing her belief that the newly combined company will grow at or above the industry growth rate.

The BBC's Martin Webber
"Many investors have been voting with their feet"
See also:

05 Sep 01 | Business
Jobs slashed in biggest PC merger
04 Sep 01 | Business
Profile: HP's Carly Fiorina
04 Sep 01 | Business
Computer industry faces a shake-out
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