ANALYSIS: HP-Compaq Merger - Comms key to meaningful merger of HPand Compaq

Securing the HP-Compaq merger was tough enough, but the hardest challenge, finds Julia Hood, lies in uniting feuding factions, skeptical shareholders, and worried workers.

Securing the HP-Compaq merger was tough enough, but the hardest challenge, finds Julia Hood, lies in uniting feuding factions, skeptical shareholders, and worried workers.

Carly Fiorina seems to have succeeded in doing what many thought was impossible. But the real work has only just begun.

When the Hewlett-Packard CEO announced plans to merge the company with Compaq last September, the market greeted the idea coolly. But that response was nothing compared to the campaign launched by Walter Hewlett, son of co-founder William Hewlett and a member of the board of directors, who publicly denounced the merger. The family of co-founder David Packard also weighed in against the deal.

Both sides wooed large shareholders and the major business media, launching opposing websites and advertising. The proxy fight often took on a highly personal tone, with the underlying question of who held the best interests of the company at heart looming large.

"It was fun to watch. It was elevated because of the personalities involved, including the scion of one of the founding families,

says Al Bellenchia, senior partner and financial communications practice leader at Fleishman-Hillard. "The media just loved that - it was like something out of Bonfire of the Vanities."

Merging and emerging

Now the preliminary tally indicates that Fiorina's aggressive campaign was a success. At the time this article went to press, the HP shareholder vote was not final, but it seemed likely to go her way. So, if the two computing giants are indeed set to merge, how do they emerge from the fray and move forward? Will the merged company bear the scars of this ugly battle?

There is no doubt there has been some brand damage. "HP's image is tarnished by it. This is a company that likes to say it's above the fray,

says Paul McGuckin, an analyst and VP with Gartner Group.

What really counts is how the merged company handles the next stage.

"A year from now, if the merger has gone spectacularly well, no one will remember,

McGuckin says. "However, if there are a series of stumbles, if the revenue doesn't hold up - that's always a problem in tech mergers - if they communicate a road map the customers hate, then everyone will remember what a bad idea Hewlett said it was."

"As difficult a communications challenge the proxy fight was, it seems the real heavy lifting begins post-proxy,

agrees Dan Tarman, MD for Burson-Marsteller's corporate and financial practice. "The proxy battle was such a pitched fight, the challenge, on the other side of that, is to demonstrate how the company is coming together."

HP and Compaq have long been preparing for the transition. Together, the two companies assembled what they call the Clean Team (so called because they are isolated from other staffers), a group of some 900 employees led by HP's Webb McKinney and Compaq CFO Jeff Clarke.

According to the San Jose Mercury News, the team has been planning every aspect of the merger, including layoffs and which product lines will be kept, scrapped, or enhanced. The group has also been studying other technology acquisitions, trying to identify what has gone right or wrong for other companies. The legacy of poor technology mergers is one the players have constantly had to combat, with Compaq's own takeover of Digital Equipment in 1998 cited as a prime example.

"My perspective is they have to continue the offensive that won them the shareholder vote,

Bellenchia says. "They need to go out and communicate how they are hitting on their plan, lay out expectations that are clear, and report where they are against those expectations."

Even with all the preparations, no one believes the transition will be easy. "A number of things concern me about whether the whole enterprise is going to be viable,

says Chris Atkins, partner and director of Ketchum's global corporate practice. "If I had to pick a worse situation, I'm not sure what it would look like - the infighting and all of that. This is going to be tough."

Communication is key

Each stakeholder group has its own unique set of problems. McGuckin believes one of the merged company's biggest priorities is to clarify things for customers as soon as possible, a process that will also ease investor concerns. "There are things that a merged company has to do in the first 100 days to have any hope for success,

he explains. "If I were an investor, I would be looking carefully for these things."

"First, you have to do an excellent job communicating with customers," he continues. "Particularly the largest customers, in terms of product road maps.

Customers will also need clear guidance on how their sales and service relationships will change.

The other major stakeholder that must be top of mind is the employee.

Some 15,000 jobs are expected to be cut, and many speculate that number to be a conservative estimate. The merged company is supposed to be eliminating $2.5 billion annually in costs. A lingering environment of uncertainty will hurt productivity at all levels.

Compaq's staffers may also be wary of joining forces with a company that has excited so much controversy, according to Atkins. "If I am an employee of Compaq, I can't exactly feel warm and fuzzy about getting melded into a culture that produced these events,

he says.

McGuckin also notes that employee surveys by Field Research Corporation, which were commissioned by Hewlett, paid for by Packard, and showed opposition within HP to the merger, will stick in the minds of some people. The company will need to turn to Michael Capellas, Compaq chairman and CEO, to communicate a fresh message to employees, he says.

Capellas, unlike Fiorina, has kept a pretty low profile throughout the proxy fight. "Someone like Capellas needs to find a way of reinvigorating the enthusiasm of the employees, many of whom obviously did not want this merger,

McGuckin says. "Fiorina, for all her brilliance, does not have a history as the kind of leader who inspires emotional loyalty. Capellas is that kind of person. He has not been tainted by the ugly, rancorous proxy fight."

Clearly, it is time for Fiorina to share the spotlight across the organization.

"My counsel to them,

says Jen Reidy, a solo practitioner with Reidy Communications, "would be to go out of the star system of showing one senior executive, and show more of the bench strength of the management team. Everyone knows one person doesn't make a great company."

Both the media and the new company's shareholders will be waiting to see how well the company handles the entire transition. "Their business strategy has to drive their media strategy,

says Atkins. "They need to present a clear, unambiguous management structure that takes the best of both companies."

Of enduring interest to HP watchers will be how the company handles Hewlett, who sits on HP's board, and whose opposition to the merger sparked the extraordinary battle. "I don't know if that can be repaired,

says Bellenchia.

"It would take much swallowing of pride on both sides, and ultimately, I don't know if that's good for the company. If they can repair it, great. If not, each should move in different directions. The worst thing would be to try to put a veneer of working together and still have there be conflict."

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