EC to probe HP/Compaq merger

The European Commission for Competition is set to launch a full-blown investigation of the proposed $20bn (£14.2bn) merger of...

The European Commission for Competition is set to launch a full-blown investigation of the proposed $20bn (£14.2bn) merger of Hewlett-Packard with Compaq.

Mario Monti, Commissioner responsible for Competition Policy, is expected to make a decision on the merger later today (Monday 28 January).

Experts believe the Commission is likely to seek concessions from HP to ensure the combined HP/Compaq PC, server and handheld computer businesses do not give the company an unfair advantage over smaller suppliers and channel partners

Monica Chlebowska, an antitrust lawyer at a law firm based in Brussels, told that HP had missed the deadline to submit any proposals for remedies it would undertake in order to satisfy European competition law.

Chlebowska said: "The Commission is likely to proceed with a four month investigation [of the merger]."

It should prove an interesting day for HP. A four-month investigation would delay the merger, and may hit shareholders, especially if the remedies proposed by the Commission are harsh.

In a filing with the US Securities and Exchange Commission (SEC), anyone with shares in the company at the end of today will be entitled to vote on the merger later in the year.

This vote is crucial for the merger to proceed. But HP still faces a battle of words with Walter Hewlett, eldest son of the company's co-founder, William Hewlett, who is trying to rally shareholder support against the merger.

The William Hewlett Revocable Trust filed a report with the SEC on 24 January stating that HP was misleading stockholders. It also suggested the merger would have a negative impact on shares.

In the SEC report Walter Hewett said: "I believe that this transaction is not strategically sound. It will dilute HP's stockholders' interest in the profitable imaging and printing business by one-third while doubling down on low-end commodity businesses like PCs."

He described the merger as "a bet-the-company move on a transaction that is not appropriate for HP."

Hewlett believes the cost savings touted by HP were over-optimistic. "The integration risk is substantial and unacceptable, and no significant combination involving a computer company has ever met expectations," he said.

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