HP - Compaq merger?

[SysLord]

What do you all think of the pending biggest merger in IT? Visionary strategy of the HP management or short-term opportunism?

Do you support the merger?

FYI, I have worked for Digital, then 'mutated' to Compaq when Compaq took over Digital. Now working for HP and facing a possible 'mutation' back to a HP/Compaq conglomerate. My vote is NO.

[Diva]

I'm so tired of these mergers. The quality doesn't improve, but the price sure goes up. Just look at Time/Warner/People/AOL/Netscape/"Insert next merge here"

[Sterling]

I really don't know enough about it to speak with any authority, but I have to say that I'm cautious. I think in all the restructuring, Dell could easily sneak in and eat their lunch.

[SysLord]

Originally posted by Sterling
I really don't know enough about it to speak with any authority, but I have to say that I'm cautious. I think in all the restructuring, Dell could easily sneak in and eat their lunch.

Yep, my thoughts as well. Dell and IBM will be the biggest winners.

[Redallnite]

Syslord, I sure do wish that you would have put a 3rd option. "doesn't matter gonna happen anyway" I am in the so-called wireless industry, within a year all those "directors of" will be in the unemployment line.

[GLADIATOR]

Good Question SysLord.

I have been in the PC industry for past 30 yrs, and its in self destruct mode.

Its the only stupid industry that:-

1) As inflation rises the prices drop ex potentially.

2) Most computers get onsite maintenance and guaranteed support within 24 hrs. While most humans have to wait 12 months for a vital operation, and even 3 months to see a specialist.

3) We give loan machines as samples for companies to try. Which car garage gives you a car for 3 months to try out?

Its a fucked up industry. Thats the facts. :rant:

Redallnite

Syslord, I sure do wish that you would have put a 3rd option. "doesn't matter gonna happen anyway" I am in the so-called wireless industry, within a year all those "directors of" will be in the unemployment line.


100% correct.
Problem is the big bosses (Fat Cats) go with a huge payout, while lower salaried persons just get the chop.

[Sterling]

Problem is the big bosses (Fat Cats) go with a huge payout, while lower salaried persons just get the chop.

Well, except Microsoft, where Rick Belluzzo just got canned.

Anyway, I thought you were a VP?

[GLADIATOR]

I am a V.P. And I am not ashamed of that. I also earn a great salary, but I work very hard for it. It's related to results, with no share options or 'free rides'

I will continue to fight both for my staff and myself. All deserve an honests days pay for an honests days work.

The key word being 'honest'

[Sterling]

Right, and I agree with you: there is nothing wrong with senior employees being compensated accordingly for the work they do and the result of the company.

Where I would disagree with you is in your earlier 'fat cat' characterisation. When companies merge, one of the reasons for doing so is economies of scale - you need less people to do the work of both companies, and people in the overlap get laid off. The result is good for shareholders. Executives who have compensation tied to results may benefit from this, if the merged company has improved profitability, say. I don't see anything wrong with this per se.

I'm also interested to know why you think share options are somehow less fair than other performance related compensation. As an executive of a public company, you have a duty to your shareholders to get good value for their investment. If you are successful, this is reflected in the stock price. Tying your compenstation to the stock price by issuing you stock options therefore seems equitable. A stock option is not a 'free ride' - if you are senior executive, stock price is a key measure of your success, and it is fair to tie your compensation to it.

In fact, I thoroughly applaud companies that compensate their employees this way, since it's often a mechanism for allowing employees at all levels to benefit from the success of the company.

At the large, Redmond based software company that I work for (yeah, that one), developers at all levels get stock options. I think it's a pretty damn fair scheme.

[Redallnite]

Sterling, the stock option is a great concept but if mergers are true to form then most key people (former Co.) will be out of a job within a year. Most options mature in 3 to 5 yrs. in order to get it at strike price.

[GLADIATOR]

I think my original comments were possible to ambigious. Please let me expand.

Firstly, lets define 'Fat cats.'
These are not the bosses that have risen to the top of a company through their efforts and the companies success. An example is Jack Welsh, the previous and outstanding CEO of G.E. Or for example the head of IBM, Louis Gestetner (?sp?). These are fantastic CEOs that deserve every penny, they get and what they get for the staff, that work within those companies. No argument there at all. Microsoft easily falls into that catagory.

My definition of 'abnoxious' fat cats, are for example the bosses that take over previously privatized industries like Electricity/Gas/Water/Telecomms ect.

These people, take over basic 'monopolies' that were already making £B, and they get £m for sitting there watching the company actually decline! I can give you examples like:-

1) BT = Peter Bonfield
Took a bulti billion $ company close to bankrupcy. Yet earned himself @ £5

2)Marconi = Lord Simpson
From £1B cash mountain, left from Lord weinstock, to bankrupt.

3)Gas Utilities = Various tossers
New CEO earns @ £2m/year. For what ?

In conclusion.
I am not against anyone making money. But 'abnoxious' Fat Cats exist. They destroy companies, but yet they get either huge payoffs, or enough moneyin one year to last most a lifetime.

Payed by results, is my method, not forecasted results, but actual. If you cannot afford to pay staff a 5% increase, then they should get nothing.

My philosophy is:-
"Whats good for the goose, is good for the gander."

In other words, if a company is doing bad, then, the bosses should suffer first and more than the workers.

Hope that better explains my views.

[SysLord]

Originally posted by Sterling
When companies merge, one of the reasons for doing so is economies of scale - you need less people to do the work of both companies, and people in the overlap get laid off. The result is good for shareholders.
True and untrue. The result may be good for the shareholders in the short term but long term? And what about staff, products, services, quality? I have lived through the early stages of the DEC-Compaq take-over and it was not nice to see. In a matter of weeks DEC middle and most of the top management was gone. Atmosphere and work conditions changed very rapidly for everyone else. And what did it do to Compaq? The integration hurt them so much cost wise that they were never able to recover from it and are now eagerly looking for a new partner. What did it do the some of the fantastic DEC products and services? DEC Unix is virtually obsoleted and the Alpha technology dead and buried.

So why is HP management so keen on taking over Compaq? Economies of scale? Not so sure about that. You hear people talking in the HP offices now about the question: 'which PC's are we going the sell in the future: the HP or the Compaq ones'? Why do they ask this: simply because either one of them will be phased out. Integration? Think not. And there are alot more difficulties when it comes to the server, storage and printing segment. So what could be a reason?:
* HP management eager to get their name in IT corporate history books. Especially Mrs Fiorina is not exactly shy of creating a high profile for herself.
* HP management trying to push up stock prices in opportunistic move: in reality stock prices have gone down since the merger was first announced.
* HP management really been sick and tired of being second to IBM. So what can they do? Grab compaq and get into IBM's slipstream and then try to overtake them in the next couple of years. Chances of that happening: 0%

I'm also interested to know why you think share options are somehow less fair than other performance related compensation. As an executive of a public company, you have a duty to your shareholders to get good value for their investment. If you are successful, this is reflected in the stock price. Tying your compenstation to the stock price by issuing you stock options therefore seems equitable. A stock option is not a 'free ride' - if you are senior executive, stock price is a key measure of your success, and it is fair to tie your compensation to it.

In fact, I thoroughly applaud companies that compensate their employees this way, since it's often a mechanism for allowing employees at all levels to benefit from the success of the company.
Woohoo, I completely disagree with that. Most of what you are saying may be true for MS as they are the perfect example in which a company and its employees have grown 'big' together through stock value (or at least for the pioneers). However, one of the things that the recent dot com craze has learned us about the stock exchange system, is that corporate 'value' no longer needs to be reflected in its share prices. Where the stock price really should reflect the probability of return on your investement - i.e. buying the stock -, it's no longer necessary so. I can have my next door neighboor sitting in his boot camp office with 1 PC and Internet connection devising the latest hype Internet or E-commerce portal with $10 in cash and no real proceeds but with a stock value of $2 million. Alot of these air castles were torn down by the dot com bubble burst but it won't take long before we are back into the same street again. Fundamentally, the stock exchange system is derailing itself by factors other than pure business economics and statistics.
Therefore I would not be interested in stock options as an employee unless I could sell them at any time. But hey, how loyal are you then to your company? You'll probably get booted out quicker than you will be able to enjoy the proceeds of your stock trade. Give me a car and give me a bonus but keep your stocks!

[SysLord]

Originally posted by GLADIATOR
the head of IBM, Louis Gestetner (?sp?).

Louis Gerstner :)

[Sterling]

The last few years have been crazy, that's for sure. However, I think the trend now is for investors to take a much more rational view of high tech ventures. It's no longer true that any punk with a clever name and a web page can IPO and get rich. These days, investors want to see business plans that have some chance of turning a profit.

Much of the irrational exuberance was caused by relaxation in SEC and taxation rules, which made it more attractive for people to IPO immature companies and then bail out immediately. I would certainly be in favor of a return to an earlier regulatory environment which didn't allow principle shareholders to bail on the company after an IPO so quickly - this would encourage people to only float more mature and stable businesses.

Most stock option plans allow you to sell at any time the amount you have vested so far. A typical vesting scheme vests over 4-5 years, with nothing vesting in the first year. If you leave the company, you have to exercise at that point - that's what keeps people loyal to the company. Of course, you then give people more stock, so people always have some that hasn't vested. For example, I'm fully vested on the first stock I got at MS, but I get more options every year based on my performance review, so I still have outstanding options which I can't exercise just yet.

If I were comparing compensation packages, I'd look at a range of factors. Being offered stock options is attractive if you think the company will do well. Even if you think the company will only show average growth, over the long haul the stock market still represents a healthy return on investment. If I was going to a big blue chip firm, I'd reckon on say 8% PA growth, and use that to compute what the option package I was being offered was worth. If that was more than the salary differential being offered by another job, then I'd say it was a favorable deal. The riskier the company, the bigger differential I'd want to see. And I don't think I'd take a job where I couldn't live off the base salary alone.

Fundamentally, as an employee, you get to shop around, if your skills are in demand. If I don't like the deal one company offers me, I go somewhere with a more attractive package. Since I'm single, and have no children, I can afford to take more risks. If I had dependents, maybe I'd be more inclined to go somewhere with a better base salary, but less chance of doing well in bonuses and stock plans.

[Redallnite]

Well DUHHHHHHH I thought I kinda said all that......

[SysLord]

Sterling,

Glad to see you have your finances well worked out :) and I agree with you that each should decide for themself what package suits best. However I stick to my comments where the stock exchange is concerned. Let's see how long it will take before we see bubbles again :)