The only clear winners in the recent acrimonious Hewlett-Packard Co. proxy fight were The Wall Street Journal, The New York Times and several other U.S. newspapers.
They were showered with a windfall of ad pages from both sides of the battle. Dissident HP board member Walter Hewlett, who contended HP’s proposed acquisition of Compaq Computer Corp. was "a $25 billion mistake," spent about $32 million fighting the deal, according to a person familiar with the situation.
HP itself, Hewlett estimated, spent $150 million promoting the deal in a political-style campaign that bombarded shareholders with ads, direct mail, press releases and, in the case of large institutional investors, face-to-face presentations.
Much about this bitter campaign remains unclear.
At press time, it was still not official which side won the vote. HP Chairman-CEO Carly Fiorina announced that HP shareholders approved the deal, but Hewlett, who is the son of HP co-founder William Hewlett, insisted the vote was too close to call. It’s also unclear what effect the communications efforts of both sides had on the vote. An official tally, which most observers expect will go HP’s way, is expected this month.
Long-term brand damage?
Industry observers disagree on what effect the heated marketing campaign will have on the long-term state of HP’s brand. The infighting has continued even after the vote, with Hewlett suing HP over alleged strong-arming of an institutional shareholder, and HP taking steps to block Hewlett’s renomination to the company’s board of directors.
Some believe the HP name is hopelessly tarnished by the battle. "How do you spell Pyrrhic?" asked Rob Enderle, a Giga Information Group analyst. Enderle said HP may have won the battle for approval of the acquisition, but he believes the deal ultimately will fail. Other observers say that a year from now, the black eye HP may have suffered from this fight will be healed.
"There’s overwhelming evidence that indicates that this is much like the UPS strike," said Robert Kahn, exec VP at brand consultancy Enterprise IG Inc. "Companies rebound nicely from these kinds of things once they get back to business and do what they’re good at doing."
On many March mornings, readers of The New York Times opened the business section to find ads from HP and from Hewlett just pages apart. The ads were the tip of the marketing communications iceberg.
Both HP and Hewlett ran classic, integrated marketing campaigns. Hewlett issued more than 35 press releases between Nov. 6, the day he announced his opposition to the deal, and March 19, the day shareholder voting closed. He also crisscrossed the country, visiting about 100 institutional investors, according to a person familiar with the situation. And he sent mailings to shareholders with explicit directions on how to vote against the deal.
The creation of Hewlett’s ads, which were paid for by the William R. Hewlett Revocable Trust, were overseen by Joele Frank, Wilkinson, Brimmer Katcher, an investor relations firm. Full of charts and graphs, the ads emphasized the numbers behind the deal, arguing that HP was making a financial mistake to link its highly profitable digital imaging business with the low-margin business of Compaq’s personal computer division. "A $25 billion mistake is not the HP Way," one of the ads declared.
A few pages away, HP was seizing "the HP Way"—the legacy of the company’s founders—for itself. The ads, created by the company’s agency of record, Goodby, Silverstein & Partners, San Francisco, revealed the hand of an ad agency at work.
"I thought the HP ads, in terms of layout, type and message, were very well done," said Al Ries, chairman of Ries & Ries, a brand consultancy.
The HP campaign also had a coordinated media plan, with the same ads running on the same day in newspapers across the country. While the HP ads made concrete arguments—such as trumpeting the value of the combined company as likely to become the leader in storage and servers—they most often focused on an emotional appeal.
One spread ad showed the first product created by HP’s founders, William Hewlett and David Packard. The headline read, "What if we had stopped here?" The body copy continued, "We might have stopped at the audio oscillator. It was a nice business. … Even now, some suggest we might stop at printers."
Beyond these ads, HP used an integrated campaign to reach shareholders, including stuffing mailboxes with direct mail. "There was way too much direct mail," said Paul McGuckin, a VP at Gartner Group Inc.
Battle became personal
In a letter to shareholders, HP disparaged Walter Hewlett, referring to him as a "musician and academic," escalating the war of words between the two camps.
Hewlett responded by accusing Fiorina and Compaq CEO Michael Capellas of being motivated to complete the deal purely for their own financial gain.
"It was like a soap opera," said Dana Stiffler, an AMR Research analyst. "You couldn’t turn away."
HP, however, worked to offset any ill will with shareholders by meeting face-to-face with institutional investors who controlled the lion’s share of HP shares, according to industry observers. Both Fiorina and Capellas visited scores of institutional investors. It was the declared votes of these institutions that enabled Fiorina to confidently predict victory on March 19.
Some observers believe that HP’s execution of the campaign has hurt the brand. "Getting down and dirty like this puts the brand at risk," Giga’s Enderle said.
Jim Gregory, president of Corporate Branding L.L.C., disagreed, arguing that HP’s communications were effective. "The campaign that came together was very, very solid," he said. "I have no doubt it made the difference."
Allowing the disagreement with Hewlett out of the boardroom was a tactical error by Fiorina, some observers said. "It seems to me the big mistake that started this off was failing to communicate with [Walter Hewlett]," AMR’s Stiffler said.
Others point to HP employees’ suspicions about the deal. About 72% of shares in employee plans were voted against the deal, according to a statement by Hewlett.
Historically, even when employees have supported a merger wholeheartedly, tech deals have failed. Compaq’s acquisition of Digital Equipment Corp. is a case in point.
"The employees have to do this," Enderle said of the HP-Compaq merger. "The executives [who are completing the deal] are not going to be doing the work."
Gartner’s McGuckin contends another group could be even more important: HP customers. "I’ve heard very few complaints that lead me to believe that customers are alarmed by the rancor," he said. "No customer has said, ‘Hey, HP isn’t the sterling company it once was.’ "
McGuckin doesn’t see a long-term effect from the mudslinging of the proxy fight. Neither does Enterprise IG’s Kahn, who said, "My experience is that the market has a very short memory. If they pull off a successful integration, they’re going to have a terrific business, and no one will remember this skirmish."