Hewlett-Packard, Compaq budget millions to keep key employees during merger

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Posted 8:29AM on Tuesday, January 15, 2002

SAN JOSE, Calif. - Hewlett-Packard Co. and Compaq Computer Corp. would pay out an extra $634 million to key employees as an incentive to stay on if their merger goes through, both companies disclosed Monday. Hewlett-Packard would pay $33.1 million to 10 top executives and $337 million to about 6,000 selected employees over two years, according to an updated merger prospectus filed with the Securities and Exchange Commission. Compaq would pay $22.4 million to seven top executives and $242 million to an undisclosed number of employees over two years, the filing said. The companies disclosed in their original prospectus on Nov. 15 that HP chief executive Carly Fiorina had turned down a merger-related bonus package that would have been worth $8 million, and that Compaq CEO Michael Capellas forfeited a $14.4 million plan. Both companies said the CEOs wanted to avoid the appearance of conflicts of interest as they urge on the deal's completion. The retention bonuses are designed to keep important employees around during the difficult integration of the massive technology companies. HP has 86,000 workers; Compaq has 66,500. At least 15,000 layoffs are expected if the deal does take place. HP's bonus plan was crafted by board members Sam Ginn, Phil Condit and Walter Hewlett, the co-founder's son who originally voted for the deal and is now encouraging shareholders to torpedo it. Compaq's retention package was developed by directors Lawrence Babbio, Judith Craven and Kenneth Lay, the head of shattered Enron Corp. Lay resigned from Compaq's board last month. HP and Compaq believe their $24.2 billion deal is essential for their long-term growth and would bolster their position in servers, data storage, personal computing and high-tech services. The companies expect merging will save at least $2.5 billion a year by 2004, or $5 to $9 per share. Opponents believe the deal is too risky, would shrink the contribution of HP's profitable printing division and overexpose the company to the weak personal-computer market. Hewlett and Packard family interests with 18 percent of HP shares are lined up against the deal. The new proxy statement also details that Walter Hewlett missed three important board meetings in July, including one at which HP's bankers from Goldman Sachs presented an analysis of the deal. Hewlett, who also filed an updated proxy statement Monday, has said he had ample information to support his opposition. Palo Alto-based HP and Houston-based Compaq are awaiting regulatory approval before setting a date for a shareholder vote, though they say the deal is still on track to close in the first half of this year. European regulators have until Jan. 31 to announce a decision on the deal or to inform the companies they need more time to study it. HP shares fell 36 cents to $22.52 on the New York Stock Exchange, while Compaq shares lost 36 cents, or 3 percent, to close at $11.14.