HP-Compaq merger in further doubt as Packard Jr. blasts Fiorina

Silicon Valley shook for a second day as the eldest son of the late David

Packard joined Bill Hewlett's son in denouncing the HP-Compaq merger. But

David W. Packard went further and slammed the leadership of HP CEO Carly

Fiorina, particularly the way she is treating HP's employees.

Packard said he takes exception at Fiorina's efforts to reduce operating

cost through massive lay-offs and her company-wide `Weakest Link' lay-off

policy that routinely fires those who fall in the bottom 5 percent of achievers.

Referring to Fiorina's pledge to lay of some 15,000 people after the Compaq

merger is completed, Packard said, "Bill and Dave never developed a

premeditated business strategy that treated HP employees as expendable.

My

father and Bill Hewlett managed a company in a way that it was never

necessary to tell people; 'Sorry, business is not so good right now.

Goodbye'."

Packard, who vowed to vote against the Compaq merger, also said he was

offended by Fiorina's policy in which the lowest 5 percent of employees as ranked through their annual performance review, are summarily fired.

And Packard blasted Fiorina's effort to 're-invent' the company. "For

some time I have been skeptical about the management's confidence that it can

aggressively 'reinvent' the HP culture overnight. This is a culture that

developed over many years and was thoroughly tested under all kinds of

business conditions. While change is necessary and inevitable, it does not

mean that every innovation is an improvement."

Unlike Walter Hewlett who initiated the barrage of criticism of the

Compaq merger and Fiorina's leadership, Packard does not sit on HP's board.

And he only controls 1.3 percent of HP's shares.

The Packard Foundation, which control about 11 percent, said it will make

up its mind about how it will vote on the Compaq merger after HP releases its

fourth quarter financial results next Thursday.

Analysts said the statement by the foundation appears designed to provide

the charity a business-oriented platform from which to oppose the Compaq

deal.

Many expect that HP's results will be poor, including perhaps the

first-ever quarterly loss.

The foundation's true reason for opposing the merger with Compaq is quite

basic. Because HP will have to issue $25 billion worth of new shares, the

value of the foundation's shares in HP will be diluted to the tune of several

billion dollars.

George Vera, the Chief Financial Officer of the David & Lucile Packard

Foundation said he expects Packard's three daughters who run the foundation

to make up their mind soon about whether to vote for or against the merger.

But in an apparent sign that the Packard sisters are also offended by the way

Fiorina is treating HP's employees, Vera said that while the company's

financial results are important in the decision, "I think that how you treat

your employees has some impact on the long-term potential of the company. I

think that will be one thing along with everything else we look at."

For the time being, HP said its board of directors, with the exception of

Walter Hewlett, remain committed to the merger. But analysts said corporate

boards typically change their minds quickly when the pendulum starts to swing

the other way.