Filed by Hewlett-Packard Company Pursuant to Rule 425
Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Compaq Computer Corporation
Commission File No.: 1-9026
This filing relates to a planned merger (the "Merger") between
Hewlett-Packard Company ("HP") and Compaq Computer Corporation ("Compaq")
pursuant to the terms of an Agreement and Plan of Reorganization, dated as of
September 4, 2001 (the "Merger Agreement"), by and among HP, Heloise Merger
Corporation and Compaq. The Merger Agreement is on file with the Securities
and Exchange Commission as an exhibit to the Current Report on Form 8-K, as
amended, filed by Hewlett-Packard Company on September 4, 2001, and is
incorporated by reference into this filing.
The following article is posted on HP's internal web site as a feature
article. This article generally describes some of the business
considerations that drive HP's mergers and acquisitions strategy, including
the Merger. This article, however, is not intended to specifically describe
the purposes and reasons underlying the Merger. The specific purposes and
reasons for the Merger will be described by HP and Compaq in the definitive
joint proxy statement/prospectus that will be mailed, when it becomes
available, to the shareowners of HP and Compaq in connection with the
Merger.
WHY DO COMPANIES MERGE?
MICHAEL LYNBERG (SEE BIO BELOW)
AOL buys Time Warner.
Viacom acquires Paramount, Simon & Schuster, Blockbuster and CBS.
Chevron joins with Texaco.
HP plans to merge with Compaq.
Why do these deals occur? How do the companies involved benefit? Why do so
many companies make mergers and acquisitions a part of their business
strategy?
Mergers and acquisitions (M&As) have become an increasingly common and
important business strategy in the last two decades. According to a study
done by investment bankers J.P. Morgan and reported in HARVARD BUSINESS
REVIEW'S November-December 2000 issue, companies worldwide invested $3.3
trillion in mergers and acquisitions in 1999 alone. Moreover, the frequency
of M&As in the United States doubled between 1990 and 2000.
Mergers and acquisitions often make headlines and stir emotions. In the
1980s, they were sometimes a means of taking control of an undervalued asset.
The acquired company would then sometimes be broken up and all or some of its
pieces sold for a profit. These rather notorious takeovers inspired movies
and books, such as WALL STREET and BARBARIANS AT THE GATE.
More recently, however, M&As have become a strategy for achieving faster
growth and greater efficiency. "Today, the typical merger or acquisition is
quite strategic and operational in nature," write coauthors Timothy J. Galpin
and Mark Herndon in THE COMPLETE GUIDE TO MERGERS AND ACQUISITIONS.
"Executives are buying an installed customer base as well as new and better
distribution channels and geographic markets. They are buying organization
competencies and an infusion of talent that leverage and extend strategic
opportunities, and they are gaining
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control over competitors' products and services. They are also consolidating
business units or industries in a down cycle, to increase revenue and share
price."
Companies merge with and acquire other companies for a variety of strategic
reasons. Here is a brief look at five of the most important:
1. M&As can enable a company to increase market share -- FAST. This is why
one airline will merge with another, acquiring its routes, airport facilities
and customer base, and why Barnes and Noble bought B. Dalton Bookstores,
instantly gaining 375 prime locations.
In high tech this can be even more important. "The plain fact is that
acquiring is much faster than building. And speed -- speed to market, speed
to positioning, speed to becoming a viable company -- is absolutely essential
in the new economy," says Alex Mandl, chairman and CEO of Teligent, in
"Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed,"
HARVARD BUSINESS REVIEW, May-June 2000.
At the same roundtable, David Bohnett, cofounder and former CEO of GeoCities,
adds, "For some Internet companies in particular, M&A is certainly the
fastest way to expand and solidify their businesses. That was one of the
driving reasons behind our decision to sell GeoCities to Yahoo! in 1999. The
two companies had compatible cultures and a similar vision...but the real
reason we came together was that it was a fast way for both of us to continue
to build competitive mass and expand our user base."
2. M&As can also enable a company to extend into new products and markets, to
add a product line or distribution channel that would be too costly and
time-consuming to build from scratch. Jack Welch, widely recognized as one
of the most outstanding business leaders of our time, led General Electric
through 1,700 acquisitions during his tenure as CEO. In his final four years,
GE made more than 100 acquisitions a year.
GE Capital, which according to Welch is the engine that has fueled GE's
growth, accounted for many of these acquisitions. According to another recent
study in HARVARD BUSINESS REVIEW, "Making the Deal Real: How GE Capital
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Integrates Acquisitions," GE Capital was founded in 1933 as a subsidiary of
GE to provide consumers with credit to purchase GE appliances. Since then,
the company has become a major financial services conglomerate with 27
separate businesses, more than 50,000 employees worldwide, and a net income
in 1996 of $2.8 billion. More than half of these businesses became part of
GE through acquisitions.
3. M&As also enable companies to gain access to new and emerging
technologies. In THE HP WAY, David Packard writes that while he and Bill
Hewlett preferred deliberate, internal growth of the organization, in the
1960s "some opportunities came along for us to acquire companies whose
technologies and products complemented our own."
The largest firm HP acquired in the 1960s was the Sanborn Company, which had
950 employees and annual sales of more than $16 million, and produced
electrocardiographs and other test and measurement instruments used by the
medical profession.
"The acquisition, accomplished through an exchange of stock, gave us entry
into the medical field, which grew into a major market for HP. We later
acquired a smaller company, F&M Scientific, which provided us with a similar
entry into the field of instrumentation for chemical analysis," stated
Packard in his book.
More recently, Cisco Systems acquired 62 companies between 1996 and 2000 in
its race to dominate the Internet server and communications equipment fields.
"If you don't have the resources to develop a component or product within six
months, you must buy what you need or miss the opportunity," said Cisco CEO
John Chambers.
4. M&As can be an efficient way to gain a loyal customer base and new and
better distribution channels. The master of this strategy, perhaps, is Sumner
Redstone, chairman and CEO of Viacom, who has taken that company from being a
family-owned operator of movie theaters, to one of the largest and most
successful media conglomerates in the world. Viacom owns Simon & Schuster,
Paramount, CBS, Nickelodeon, MTV, Blockbuster and more. Many of these
businesses complement one another: Simon & Schuster might publish a book that
is tied in to a Paramount motion picture, which is later marketed on video
and DVD through Blockbuster stores, and promoted on CBS and MTV.
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Each of Viacom's M&As enabled the company to open up new and better
distribution channels for its entertainment products, or to provide content
for the distribution channels. After years of pursuing and putting together
deals, Redstone observes in his book A PASSION TO WIN that his company has
attained a goal that is common to most businesses: "Viacom is in the
position, no matter how indirect the path may sometimes be, to affect the
world around it."
5. M&As can help a company add to the bottom line through cost reductions and
economies of scale. This is the rationale behind the merger of Chevron and
Texaco, which closed in October 2001. Merging the two companies will enable
them to consolidate their oil exploration, drilling, refining and shipping
activities, saving an estimated $1.2 billion a year (some analysts say $3
billion a year).
Dennis Kozlowski, CEO of Tyco International and part of Harvard Business
School's CEO roundtable on making mergers succeed, says Tyco has been very
aggressive in making acquisitions. "The key thing I've learned is that
acquisitions work best when the main rationale is cost reduction. You can
nearly always achieve them because you can see up front what they are. You
can define, measure and capture them. But there's more risk with revenue
enhancements; they're much more difficult to implement," says Kozlowski.
Professor Joseph L. Bower concurs in his article "Not All M&As are Alike --
and That Matters," published in the HARVARD BUSINESS REVIEW, March 2001
edition. In mature industries, such as steel, automotive, or petrochemical,
M&As allow companies to deal with overcapacity through consolidation.
Acquiring companies are able to shutdown under-performing facilities and lay
off less effective managers. In addition, administrative processes are
streamlined. The result, says Bower, is "greater market share, a more
efficient operation, better managers, more clout and the industry as a whole
has less excess capacity."
Organizations can pursue M&As for a variety of strategic reasons. Usually,
the merger or acquisition is undertaken to create a leaner and more efficient
organization that
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benefits from consolidation and economies of scale, and to create an
organization that is poised for greater growth.
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Michael Lynberg is a Senior Associate of ROI Communications, Inc., a
strategic communications consulting company focused on organizations in
change. A graduate of UCLA and Harvard, he is the author of eight books,
including MAKE EACH DAY YOUR MASTERPIECE: PRACTICAL WISDOM FOR LIVING AN
EXCEPTIONAL LIFE, which is endorsed by Stephen Covey, Joan Lunden, Larry King
and many others.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks,
uncertainties and assumptions. If any of these risks or uncertainties
materializes or any of these assumptions proves incorrect, the results of HP
and its consolidated subsidiaries could differ materially from those
expressed or implied by such forward-looking statements. All statements other
than statements of historical fact are statements that could be deemed
forward-looking statements, including any projections of earnings, revenues,
synergies, accretion or other financial items; any statements of the plans,
strategies, and objectives of management for future operations, including the
execution of integration and restructuring plans and the anticipated timing
of filings, approvals and closings relating to the Compaq transaction or
other planned acquisitions; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future
economic conditions or performance; any statements of belief and any
statements of assumptions underlying any of the foregoing. The risks,
uncertainties and assumptions referred to above include the ability of HP to
retain and motivate key employees; the timely development, production and
acceptance of products and services and their feature sets; the challenge of
managing asset levels, including inventory; the flow of products into
third-party distribution channels; the difficulty of keeping expense growth
at modest levels while increasing revenues; the challenges of integration and
restructuring associated with the Compaq transaction or other planned
acquisitions and the challenges of achieving anticipated synergies; the
possibility that the Compaq transaction or other planned acquisitions may not
close or that HP, Compaq or other parties to planned acquisitions may be
required to modify some aspects of the acquisition transactions in order to
obtain regulatory approvals; the assumption of maintaining revenues on a
combined company basis following the close of the Compaq transaction or other
planned acquisitions; and other risks that are described from time to time in
HP's Securities and Exchange Commission reports, including but not limited to
the annual report on Form 10-K for the year ended Oct. 31, 2000, and
subsequently filed reports. HP assumes no obligation and does not intend to
update these forward-looking statements.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
On November 15, 2001, HP filed a Registration Statement with the SEC
containing a preliminary joint proxy statement/prospectus regarding the
Merger. Investors and security holders of HP and Compaq are urged to read
the preliminary joint proxy statement/prospectus filed with the SEC on
November 15, 2001 and the definitive joint proxy statement/prospectus when it
becomes available and any other relevant materials filed by HP or Compaq with
the SEC because they contain, or will contain, important information about
HP, Compaq and the Merger. The definitive joint proxy statement/prospectus
will be sent to the security holders of HP and Compaq seeking their approval
of the proposed transaction. The preliminary joint proxy
statement/prospectus filed with the SEC on November 15, 2001, the definitive
joint proxy statement/prospectus and other relevant materials (when they
become available), and any other documents filed by HP or Compaq with the
SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In
addition, investors and security holders may obtain free copies of the
documents filed with the SEC by HP by contacting HP Investor Relations, 3000
Hanover Street, Palo Alto, California 94304, 650-857-1501. Investors and
security holders may obtain free copies of the documents filed with the SEC
by Compaq by contacting Compaq Investor Relations, P.O. Box 692000, Houston,
Texas 77269-2000, 800-433-2391. Investors and security holders are urged to
read the definitive joint proxy statement/prospectus and the other relevant
materials when they become available before making any voting or investment
decision with respect to the Merger.
HP, Carleton S. Fiorina, HP's Chairman of the Board and Chief Executive
Officer, Robert P. Wayman, HP's Executive Vice President, Finance and
Administration and Chief Financial Officer, and certain of HP's other
executive officers and directors may be deemed to be participants in the
solicitation of proxies from the stockholders of HP and Compaq in favor of
the Merger. The other executive officers and directors of HP who may be
participants in the solicitation of proxies in connection with the Merger
have not been determined as of the date of this filing. A description of the
interests of Ms. Fiorina, Mr. Wayman and HP's other executive officers and
directors in HP is set forth in the proxy statement for HP's 2001 Annual
Meeting of Stockholders, which was filed with the SEC on January 25, 2001.
Investors and security holders may obtain more detailed information regarding
the direct and indirect interests of Ms. Fiorina, Mr. Wayman and HP's other
executive officers and directors in the Merger by reading the preliminary
joint proxy statement/prospectus filed with the SEC on November 15, 2001 and
the definitive joint proxy statement/prospectus when it becomes available.
Compaq and Michael D. Capellas, Compaq's Chairman and Chief Executive
Officer, and certain of Compaq's other executive officers and directors may
be deemed to be participants in the solicitation of proxies from the
stockholders of Compaq and HP in favor of the Merger. The other executive
officers and directors of Compaq who may be participants in the solicitation
of proxies in connection with the Merger have not been determined as of the
date of this filing. A description of the interests of Mr. Capellas and
Compaq's other executive officers and directors in Compaq is set forth in the
proxy statement for Compaq's 2001 Annual Meeting of Stockholders, which was
filed with the SEC on March 12, 2001. Investors and security holders may
obtain more detailed information regarding the direct and indirect interests
of Mr. Capellas and Compaq's other executive officers and directors in the
Merger by reading the preliminary joint proxy statement/prospectus filed with
the SEC on November 15, 2001 and the definitive joint proxy
statement/prospectus when it becomes available.
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