Walter Hewlett: HP is not a one-stop shop

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With the final vote on the proposed merger between Hewlett-Packard and Compaq a week away, dissident HP director Walter Hewlett argued on Tuesday that HP's plan to become a one-stop shop for corporate customers would instead derail the company. "HP's goal of becoming an end-to-end solutions company will lead to a lack of focus and has lead many conglomerates to their downfall," Hewlett said in a conference call to analysts and investors. "HP can't out-Dell Dell and out-IBM IBM at the same time." Hewlett's remarks come just a week before the HP shareholders vote on the merger proposal. Compaq shareholders vote one day later, on 20 March. Meanwhile, CNET News.com learnt on Tuesday that a large shareholder included on a top 20 list referred to by both sides has decided to vote against the merger. A source familiar with the decision said a combined company "changes the business mix, and (the investor) thinks it will be dilutive to earnings on an operating basis going forward. And the merger faces huge integration challenges." The decision brings the number of top 20 HP institutional investors that oppose the deal to three, excluding foundations affiliated with the Hewlett and Packard families. Of this group, only Brandes Investment Partners has been willing to go public with its opposition. Recently, both sides have been engaged in a tug-of-war over this top 20 list. On Monday, HP director Phil Condit said the company was gaining the support of most on the list. But that struggle may be misleading. Some of the institutional investors on the list hold shares for others and do not control the voting of all those shares -- as is the case with the shareholder that reached a decision on Tuesday. Despite this latest decision by a major institutional shareholder, HP spokeswoman Rebeca Robboy said the company stands by Condit's comments. The race to win votes is getting fevered, as both camps seek to win over more than 50 percent of the shareholders by next Tuesday. Hewlett, as part of his conference call, outlined his strategy, his future role as a director, and the divesture schedule of HP shares by the Hewlett family, their trust and foundation. Hewlett noted this collective group holds about 109 million shares and that the William and Flora Hewlett Foundation plans to reduce the 35 percent HP waiting in its portfolio to around 15 percent during the next three years. "We will continue to be a long-term holder of HP," Hewlett added. Hewlett also reiterated the need for HP to invest in its lucrative printing and imaging business and grow its consulting and services operation through smaller, targeted acquisitions. Hewlett also stressed the need to reduce investment into its low-margin PC business. "We need to recognise that...HP brings no value to low-cost computing and should not be seeking growth in this area by chasing profitless revenues," Hewlett said. Finally, Hewlett again sought to ease investors' concerns of a mass exodus of management and directors should the merger fail. "I don't expect Carly Fiorina will survive as CEO if the merger is voted down by shareholders. This will be her second aborted merger in less than two years, and (she) won't have the credibility to lead the company," Hewlett said. "I expect to serve on the search committee for a new CEO (should Fiorina leave), and I believe we will look for a current CEO with a track record for creating shareholder value and not get a CEO who again is learning on the job."

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