US regulators clear HP-Compaq merger

A last push for the merger deal to go through...

Trade regulators in the US have approved a proposed merger of the computer and printing giant, Hewlett-Packard, and the second largest American computer maker, Compaq.

The Federal Trade Commission (FTC) said it had found no reason to believe the merger would stifle competition.

The companies believe merging will improve the economics of their struggling personal computer divisions and generate savings.

The chances of the merger going through have also been given a boost after an influential investor advisory firm gave its backing to the deal.

Building momentum

The merger - which at $22bn is the biggest in hi-tech history - now has to be approved by shareholders of the two companies.

Fiorina: Focused now on the shareholder vote

The families of the founders of Hewlett-Packard have been lobbying against the merger, but European and Canadian antitrust officials have already approved the deal.

Announcing its unanimous decision, the five-member FTC panel said it had conducted an extensive investigation of the merger's effect on competition in markets for personal computers, servers and microprocessors and other products.

"The commission did not find reason to believe that the proposed transaction would impair competition in any relevant market," it said.

HP chairwoman and chief executive Carly Fiorina said the decision validated HP's conviction "that the merger can only enhance competition throughout our markets".

"We are now focused on winning the shareowner vote," she said.

Compaq chairman Michael Capellas said that, with the FTC approval, it was "clear that we are building momentum in the marketplace".

"We believe the merger will create a world-class technology company to the ultimate benefit of shareholders, customers and employees," he said.

HP and Compaq shareholders are scheduled to vote on 19 and 20 March respectively.

Further backing

The FTC's approval followed an endorsement of the merger by an influential investor advisory firm.

Institutional Shareholder Services (ISS) said Compaq shareholders should vote in favour of the deal, a day after giving the same advice to HP shareholders.

ISS advises more than 700 funds on how to vote on corporate matters, although some institutional shareholders have said they will not necessarily follow its lead.

On Wall Street on Wednesday, Compaq shares rose 3.8% to $10.98, while HP shares dropped 2% to $20.18.

The difference between Compaq's share price and the implied value of HP's offer has now narrowed to less than $2.

Analysts say the reduction in this gap implies the market now thinks there is a rising chance that the merger will go through.