HP/Compaq: Gartner - merger unlikely to complete

The planned $US25 billion merger between Hewlett-Packard and Compaq is unlikely to be completed, according to an assessment issued this week by market analyst Gartner.

          The planned $US25 billion merger between Hewlett-Packard (HP) and Compaq is unlikely to be completed, according to an assessment issued this week by market analyst Gartner.

          Gartner believes that too many difficulties exist for the two companies to successfully bring off the merger. These include:

          • Regulatory approval. End user customers of the two companies will have to plan ahead on inadequate information, since neither company can finalise a merged product line until approval is granted, a process that may take nine months.
          • The touted cost saving of $2.5 billion annually from 2004 only amounts to about 3% of the combined costs for the two companies
          • Product overlaps are daunting. The combined HP/Compaq will have to sort out four server architectures, seven operating systems, four storage architectures and several service businesses.
          • Both companies have struggled to sort out the conflicts between direct and indirect PC sales channels and would be faced with the added complexity of managing two businesses as well as two brands.
          • Both companies have service operations largely limited to hardware support, and have not been able to move into fast-growing businesses like consulting, system integration and outsourcing, and will not be able to without significant extra investment.
          To increase cost-efficiency, job losses would ultimately be much higher than the 15,000 already announced, Gartner says in its assessment. In the Asia-Pacific region alone, several thousand more jobs could go in the medium-term, Gartner says.

          Overall, Gartner says that the companies have not done a good enough job of presenting the benefits of the acquisition compared with the deal's risk. The investment community has agreed -- on Tuesday alone, HP shares fell 19% to a five-year low, and Compaq shares fell about 10%.

          Shareholders of both companies have yet to approve the deal, Gartner notes.

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