HP/Compaq

Feelings aren’t good enough to justify huge mergers.–Ed

I don’t normally have a dirty mind, but after reading some of the quotes from Michael Capellas and Carly Fiorina, I’m
not sure whether they want to merge their companies or with each other. 🙂

This might be a nice fairy story for the media, but the stock market knows that love doesn’t conquer all, or even puts food on the table.

HP was selling at about $25 a share about a week ago. Now it’s at $18. Since the deal was based on HP stock, if the price of HP drops, so does the value of the offer.

Right now, it’s like somebody offered to buy your computer for $1,000 on Monday, and on Thursday, you’re only going to get $750 for it.

You obviously wouldn’t be too happy about it, and neither are Compaq (or HP) shareholders.

Not That We Don’t Have Enough Trouble

Forget the love story, the “warm working relationship,” the “successful melding of staffs” “the [extraordinary] chemistry of the whole thing . . . it happened naturally.” (I’m not making
up these lines, see for yourself).

The reality is more like “misery loves company.”

These companies aren’t doing too well. Neither are their heads.

In the PC industry, while they’re not getting sliced and diced by Dell as badly as Gateway, neither are doing much better than that.

Both to varying degrees have been living off their prior reputations as companies that made quality equipment.

Those days are either over or in the process of ending.

I could spend a lot of time talking about Compaq, but this chart says it all. Owners of Compaq
machines put them in the same class as . . . eMachines.

HP does better in this survey, but even PC Magazine noted in its comments that there wasn’t any real reason why. If you look at the numbers,
HP and Compaq are like Tweedledum and Tweedledee. HP’s higher grade shows what reputation can do for you, for a while, anyway.

If you look at HP’s core consumer products, matters have slipped there, too. Despite problems of their own, Epson has been walloping HP in inkjet printers and scanners, areas where HP used to rule. If you go to the photography buffs’ newsgroups, talking HP just brands you as a neophyte.

You also find more mainstream user satisfaction significantly lower for HP than Epson products.

These are real problems, but what are the chief executives of these two companies doing? They’re singing love songs.

If this were a one-time event, we could overlook it, but both these folks are junk-mood junkies. Mike Magee starts off an article with a couple more babbles, I mean baubles.

A certain degree of babble is to be expected from corporatedom. It’s when you don’t get anything else that you have a problem. When you begin to believe that these people believe babble is all there is, you have real problems.

I’ve yet to see a statement from these execs saying “This merger is good because of A, B, C.” Not that there aren’t at least arguable A, B and Cs out there, but we don’t hear about those. I guess the Love Boat matters more.

If the consenting adults can’t even concretely or convincingly tell you exactly why they’re doing this besides love, why should those less star-struck buy it?

Even successful mergers of companies this big take a few years to work themselves out, and those are comparatively rare. Usually what happens is that it turns into a company-wide power struggle between “them” and “us,” and the weaker side ends up being flushed from the corporate body, leaving the “winners” to clean up the stillbirth.

Many believe the reason why Compaq went south was due to just this occurring after taking over DEC.

Now they’re going to do it again with somebody who took over HP with high expectations and has worn her welcome thin by being a buzzword bubblehead?

(That’s not sexist; Mr. Capellas is just as bad.) Anybody who thinks you can turn a company around by changing the organizational model, or by creating “solutions groups” is a bubblehead. No wonder why these two think this is a match made in heaven; they’re soul mates.)

The cynical misanthropes watching might observe that this looks more like two people who promised a ton and can’t deliver anything but this distraction.

But I’m a rank amateur at this, I’m going to leave that to a seasoned pro.

Conclusion

There are some concrete problems I haven’t addressed; there are potential antitrust issues, for instance. A merged HP/Compaq would dominate the US retail market to such a degree that even a Republican Department of Commerce is likely to have problems with it.

But problems like these pale into insignificance when you’re not too sure your leaders are in touch with reality.

Maybe the best way to illustrate is to contrast Romeo and Juliet to AMD.

You may or may not like Jerry Sanders, AMD’s CEO. You may not like his style. You may not think he’s the best possible CEO AMD could have.

But, my God, at least Jerry Sanders doesn’t live in la-la land. He knows he’s in a bare-knuckled fight against Intel; he has been much of his adult life. He doesn’t think he’s going to stop Intel by tinkering with the organizational chart or forming study groups.

One day, AMD might agree to be bought out by somebody, but if and when that day comes, there’s going to be a pretty good reason why, and he’s not going to have the slightest problem telling you exactly why, in plain English.
He’s not going to give you Love Story instead.

Even if Intel ends up smacking him a good one, you know he’s going to go down fighting, not wonder if he even noticed the beating he was getting because he had such a buzz off new buzzwords.

And that’s Jerry Sanders, an underdog perhaps a bit too flamboyant for his own good. Our soul mates have to deal with Michael Dell, who probably makes Jerry Sanders look like, well, Colonel Sanders. With no plan, no real reason for merging.

Just love.

Email Ed