The moves deliver a significant blow to the planned $21.55 billion acquisition, announced in early September. Analysts say the deal now has a 50-50 chance of falling through.
On Tuesday, the Hewlett family, which owns 8 percent of HP, announced its opposition to the merger. Packard said in a statement, also issued Tuesday, that he agrees with the Hewlett family's decision. "The merger comes down to one question: Which way does the David and Lucille Packard Foundation vote?" said Lehman Brothers analyst Dan Niles.
As family opposition to the deal gains momentum, HP's board of directors--with the exception of Walter Hewlett--reaffirmed Wednesday that it stands firmly behind the deal to acquire Compaq.
"The board thoroughly analysed this transaction and unanimously concluded this is the very best way to deliver the value our shareowners expect," Dick Hackborn, former chairman of HP, said in a statement. "Today, I'm even more convinced of the power of this combination, particularly given the progress of our integration plans."
Compaq said in a statement that its board of directors met Wednesday and reaffirmed their support for the merger.
"The board is more convinced than ever that the merger serves the best interests of shareholders, customers, partners and employees," Compaq said in the statement.
David Packard is not part of the Packard Foundation, which owns 10.3 percent of HP's shares and could vote either way. A representative for the David and Lucile Packard Foundation said the foundation is conducting an independent analysis of the deal. "We'll be making our decision in the future," the representative said.
But David Packard said the Packard Humanities Institute, another family foundation that owns about 1.3 percent of HP stock, is extremely unlikely to support the merger.
"For some time I have been skeptical about management's confidence that it can aggressively reinvent HP culture overnight," Packard said in the statement.
He also criticised the logic of the merger plan for depending on massive employee layoffs of at least 15,000--probably more--which, he said, went against HP's corporate tradition. "For over 50 years, one of HP's fundamental corporate objectives has been to provide long-term employment for its people," he said.
Although analysts say the deal is likely to unravel, they have also suggested it could proceed with a different structure. "It is also possible for HP to change the structure of the deal, e.g., to include some kind of spinoff of the PC biz before the shareholder vote," Niles said.
News of the family squabble met a warm reception at one rival PC company.
"I don't know whether this announcement by the Hewlett family will change the merger combination," Dell Computer chairman Michael Dell said in an interview with CNET News.com Tuesday evening. "At a minimum, it just adds more confusion and uncertainty for both companies, which is only positive for Dell."
When it comes to products, services and support, Dell said, HP and Compaq are in a "hurricane of confusion...and we're the pillar of stability."
The turmoil regarding the deal pushed down the merging companies' stocks throughout the day Wednesday. At midafternoon, HP shares were sagging 60 cents to $19.21, and Compaq shares were down 50 cents, or 6 percent, to $8.
News.com's Ian Fried contributed to this report.
Too Right David! As a former employee of one of the greatest companies (not just IT) in the world, I am dismayed at the loss of HP's culture. So much so that, several years ago, I resigned from the comapny I had always thought I would grow old with. The merger, and the layoffs, are another sign of HP being "Realistic" about its position in the world. So was dumping the core of HP and creating Agilent to spin off the bits that didn't 'fit' its new PC focus. It has always been said internally "If only HP knew what HP knew". My reconing is "If only the new HP could remember what HP forgot". Its become another Big Blue. No heart, little culture, big business with $$$ as the only direction and trying to "invent" a culture of overwork and lack of compassion. Gone is 'The HP Way' that made it great. David and Bill would be turning in their graves, god rest their big-hearted souls.