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Federal approval of proposed HP-Compaq merger doesn't make it a sure thing

Updated:

WASHINGTON (AP) _ Approval by federal regulators adds momentum to the proposed $22 billion merger of Hewlett-Packard Co. and Compaq Computer Corp., but the deal still faces a tough shareholder vote.

HP, based in Palo Alto, Calif., and Compaq, based in Houston, believe merging will improve the economics of their struggling personal computer divisions and generate $2.5 billion in savings. The deal also would make them dominant in several growing technology markets, especially corporate computing and high-tech services.

Hewlett and Packard family interests have opposed the merger, which would be the biggest in high-tech history.

The Federal Trade Commission said Wednesday it voted to close its antitrust investigation of the proposed deal. The 5-0 commission vote requires no additional action from the companies to meet antitrust requirements.

``They are over the regulatory roadblocks,'' said Paul McGuckin, a vice president with Gartner Inc., an analysts firm. ``It's not a certainty that the merger is going to get approved, but its certainly better than a 50-50 chance now.''

The FTC said it ``did not find reason to believe that the proposed transaction would impair competition in any relevant markets.'' The agency said it reached that conclusion after an extensive investigation into the merger's effects in markets for products including personal computers, servers and microprocessors.

European and Canadian antitrust officials already have approved the merger.

Carly Fiorina, Hewlett-Packard's chairwoman and chief executive, said the FTC decision ``validates our conviction from the outset that the merger can only enhance competition throughout our markets.''

``We are now focused on winning the share owner vote,'' she said.

Michael Capellas, Compaq chairman and chief executive, said, ``With the FTC approval, it is clear that we are building momentum in the marketplace.''

``We believe the merger will create a world-class technology company to the ultimate benefit of shareholders, customers and employees,'' he said.

HP shareholders are to vote March 19. Compaq shareholders, voting the next day, are expected to approve the deal.

Opponents including Walter Hewlett, son of HP co-founder William Hewlett and a member of the HP board, worry that absorbing Compaq into HP would be a difficult and distracting process. In their view, Compaq would dramatically increase HP's exposure to the slumping personal computer business at the expense of the profitable printing and digital-imaging division.

HP and Walter Hewlett have been locked for months in a bruising, political-style campaign for shareholder support, which is expected to intensify as the vote gets closer. More than 20 percent of HP shares, including those held by the Hewlett and Packard families, are lined up against the acquisition.

In a statement Wednesday, Hewlett said, ``We all know that regulators vociferously express concern when there is even a whiff of competitive advantage in a merger.''

``We believe that HP stockholders should be concerned when competitors like Sun, Dell and IBM don't object to a transaction that is supposed to add value to HP,'' he said.

On Tuesday, Institutional Shareholder Services, an influential research firm based in Rockville, Md., gave another boost to the merger by saying HP's acquisition of Compaq could be an excellent long-term move despite sizable risks.
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