It hasn’t been as electrifying as Ali vs. Frazier in the boxing ring or as important as Bush vs. Gore in the presidential race. But the showdown of Fiorina vs. Hewlett in Silicon Valley has been one nasty, bare-knuckle fight for the hearts and minds of 900,000 shareholders.

The strategic direction of Hewlett-Packard, the venerable computer and printer maker based in Palo Alto, Calif., will be at stake when the votes are counted on March 19 to determine whether H-P’s plan to acquire Compaq Computer will proceed.

Also hanging in the balance to some extent, say Wharton faculty members, are the futures of CEO Carleton “Carly” Fiorina and dissident board member Walter B. Hewlett, son of company co-founder Walter R. Hewlett and the leading opponent of the deal. The faculty members differ as to whether a defeat would compel Fiorina to resign. Some say it is likely that Fiorina will emerge the victor by a slight margin, having overcome considerable opposition to the proposed merger when it was announced last year. All say the vote will be close.

Wharton management professor Michael Useem, director of the school’s Center for Leadership and Change, sees the battle between Fiorina and Hewlett as “more than a blood feud.” Analyzing the fight in the March 11 edition of the Wall Street Journal, Useem wrote that “it rests on contrasting visions of the computer industry and diverging tolerances for business risk. For Fiorina, corporate scale is the winning strategy, and she’s bet the farm on the behemoth that will result. For Hewlett, core competency is the enduring stratagem, and he’s for no wager at all. The incumbent sees integration of computer services as inevitable. The dissident would limit H-P to simply making what it already makes best: computer printers. On this, Fiorina is in step with most industry executives, Hewlett out of step.”

“It’s going to be a real nail-biter,” says management professor Nancy Rothbard. “Fiorina and management are waging an uphill battle and they’re really doing a good job of it. The fact that it’s close shows they’ve been persuasive on many fronts.”

“I think it’s a horse race still,” adds management professor Martin Conyon. “But it’s more likely today than before that there will be a ‘yes’ vote.”

Hopes for a merger looked bleak last Sept. 3 when H-P announced that it planned to acquire Houston-based Compaq, a maker of personal computers. Wall Street looked askance at the deal – as did Wharton faculty – and the share prices of H-P and Compaq plunged. The PC-manufacturing business is increasingly low-margin and unattractive, those skeptical of the deal said, and the difficulties in merging two companies with different cultures is costly, time consuming and difficult.

They noted that a combined H-P/Compaq would lack the ability to take on a powerhouse like IBM in the area of computer services, a high-margin business that has become attractive as PCs themselves have come to be seen as commodities. Compaq attempts to digest its 1998 acquisition of Digital Equipment, a deal that many considered a failure, added to the uncertainty.

The Fiorina and Hewlett camps have been relentless in fighting for their respective positions, spending what has been estimated at tens of millions of dollars on advertising and issuing charges and countercharges.

The acquisition of Compaq is opposed by the William R. Hewlett Revocable Trust, the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation and other stockholders representing about 18% of H-P’s shares. David Packard is the company’s other co-founder.

Robert E. Mittelstaedt Jr., vice dean and director of Wharton’s Aresty Institute of Executive Education, predicts that shareholders will approve the acquisition but says major risks to a successful merger will remain.

“I think Fiorina has made a good case for the pieces that fit together and will provide some synergies,” says Mittelstaedt. “The difficulty with her position involves a question of degree. While there are pieces that fit together, you have to ask if that is enough to justify the extraordinarily high price H-P is paying for Compaq. The reason it’s extraordinary is so much of the combined companies are in businesses that are not high-margin. She sees value in buying Compaq’s consulting and services piece, which she believes will be a good fit for the future. The question is whether that price will be justified down the road.”

Mittelstaedt says H-P has succeeded in framing the acquisition issue as an either-or proposition to its advantage, but the best course of action may lie elsewhere. “I believe Walter Hewlett’s plan is not well-founded, and H-P’s management knows that too. He hasn’t articulated what’s good for the company. But it may be that the right thing to do may be to not accept either [H-P’s or Hewlett’s] plans but to go back and look at alternatives.”

Rothbard says one reason supporters of the deal have had to fight so hard is that the Hewlett and Packard foundations carry a lot of weight with shareholders. “Not only do they own big blocks of stock, there also is emotional power at work when you see people with names of the company campaigning against the merger. That’s what marketers mean when they talk about the power of a brand. The identification with those names is very strong. It’s difficult to overcome that.”

She predicts that Fiorina may be forced to resign if the acquisition is rejected. “If it doesn’t go through, it would be a huge blow to her credibility.” Mittelstaedt, however, suggests that Fiorina could stay on even if the deal falls through. “If the board really believes that she is a good CEO, the fact the she lost a particular deal shouldn’t be a reason to dump her. If she loses the vote, I think she probably would say, ‘OK, we lost that one. Let’s get back to work.’”

According to Conyon, Fiorina’s departure would not necessarily be a foregone conclusion in the event of a “no” vote. But a defeat “would make her position more difficult. If an individual puts a lot of weight on such an important deal and that deal doesn’t come through, that has to have an effect on him or her.”

As for Hewlett, Mittelstaedt says he should resign the director’s seat he has held since 1987 no matter how the voting turns out “because he has not acted in good conscience as a board member” during the events surrounding the Compaq deal. “There’s nothing wrong with changing your position, but not in a public way. I think he’s been enough of a disruption to the board.”

Mittelstaedt was referring to a controversy over Hewlett’s stance on the proposed deal. Last summer Hewlett voted with other board members to approve the merger. But, in an apparent flip-flop, he later announced that he opposed the merger – not as a director but as a stockholder. The change of heart was surprising, but Hewlett said the only reason he initially voted in favor of the merger was because he was led to believe by a lawyer for H-P that a merger required unanimous approval by H-P’s board. Hence, Hewlett explained, he voted “yes” because he feared that a “no” vote would mean that new negotiations between the companies would commence and that Compaq might seek a higher price for its shares. In a filing with the Securities and Exchange Commission, H-P denied Hewlett’s interpretation of what had happened prior to the board’s vote.

“It’s never a good idea for a board member to argue in favor of a merger and then to oppose it,” says Conyon. “Hewlett’s explanation of why he changed his mind is perhaps disingenuous. This has been a major issue.”

H-P has had embarrassing moments as well. Walter Hewlett released details that the board had discussed a plan to pay Fiorina and Compaq CEO Michael Capellas a combined $115 million in compensation over two years after the companies merged. H-P said such a plan was talked about but not implemented. Compaq said compensation would be negotiated after the proposed acquisition took place.

One observer told the Wall Street Journal that it appeared the board postponed acting on the plan just so that Fiorina, whose proposed compensation was reported as $70 million, could deny that such a pay package was in place. Larry Sonsini, H-P’s outside lawyer, told The New York Times that no post-deal employment contracts had been agreed upon with Fiorina or Capellas. Early discussions about such compensation had been “aborted,” Sonsini said.

“Fiorina has a rich compensation package regardless of the outcome of the vote,” Mittelstaedt says. “She should be rewarded for performance, not for doing this specific deal.”

Whether the acquisition makes sense depends on the investors, Conyon says. “If you’re risk averse, you might actually think the best bet is for H-P to go it alone because a lot of the benefits depend on what projected income and profit flows are over the short and medium term. Often with any sort of marriage there are costs involved, and you can imagine there will be some immediate costs if the marriage goes ahead. If you’re a different sort of investor, you might see the benefits of marriage, the creative synergies and the long-term value of the strategic nature of the merger. This investor would be more optimistic about income streams and profit flows.”

The battle for shareholder votes has, appropriately enough, gone online. Walter B. Hewlett and his allies created a website – – that disseminates the views of those against the proposed acquisition.

“Hewlett-Packard has many strengths to build on – a leading position in the very attractive imaging and printing market, a great consumer brand, a strong reputation with enterprise customers and a prodigious source of innovation in Hewlett-Packard Labs,” the website says. “With hard work, strong leadership and a clear focus on stockholder value, Hewlett-Packard can do far better for its stockholders than acquiring Compaq.”

Fiorina and H-P’s management, however, have waged a fierce battle of their own to win over the naysayers, especially institutional investors who hold large positions in the company’s stock. H-P’s management has put forth its arguments in favor of the deal in personal meetings with shareholders, in full-page newspaper ads and on a website of its own –

“By merging with Compaq, the new HP will become the market leader in servers, storage, management software, printing and imaging, and PCs, improving our ability to offer the end-to-end solutions customers demand. We will double our profitable and growing services business, enhance our R&D efforts, and extend our customer reach in 160 countries,” the H-P website states. The website also asserts that the combined company will achieve annual cost savings of $2.5 billion, adding $5 to $9 in present value to each H-P share, and increase earnings per share by 13% during the first year following the merger.

In recent days, Fiorina, who was recruited by H-P from Lucent Technologies in 1999, has won support for the merger from some key players.

Institutional Shareholder Services, a firm that advises large stockholders of the merits of deals, announced on March 5 that it supported the acquisition. Twenty-three percent of H-P’s shareholders receive reports issued by ISS, based in Rockville, Md. In its evaluation, ISS said that while opponents make “a credible case that the risks associated with the transaction are real and material, we believe that management’s upside scenario is achievable.”

On March 11, the proposed deal was given a boost by Richard A. Hackborn, former head of H-P’s printer division and current H-P board member. In a letter, he urged shareholders and employees to vote in favor of the acquisition.

“The one thing I’ve learned in my 40-year association with HP is that nobody is ever happy for very long working in an organization that’s not a market success,” Hackborn wrote. “While we are strong in some areas of our business today, we are not strong enough across our entire business to make the investments necessary to position us as a market leader for the future. I’ve spent the past three years studying every possible option. I’ve come to the conclusion that merging with Compaq is the best way for us to reclaim a leadership role at the center of our industry, while strengthening our company across the board.”

Meanwhile, two organizations – the California Public Employees’ Retirement System, known as Calpers, and the Ontario (Canada) Teachers Pension Plan Board – recently announced that they would join other institutional investors in voting against the proposal. The giant Calpers fund said it was troubled by “significant integration risks” that would accompany a merger.

Faculty members say that the results of the voting, yea or nay, will mark a beginning, not an end, to the challenges facing H-P.

“Those opposed to the merger say, ‘Look, the business is just fine as it is and we don’t want to dilute who we are,’” says Rothbard. “But the reason H-P wants to merge is to be a major player, and they can’t do that by incremental growth. If there’s a ‘no’ vote, the company will have to settle for not being a huge player. But I’m not sure how that’s going to play out, given that Fiorina has framed the issue by saying they have to grow quickly to be a big presence.”

“Fiorina has done a good job making her case, but the case makes me think H-P is desperate,” adds Mittelstaedt, who owns H-P stock and, like other shareholders, has been inundated with letters and phone calls from both the Hewlett and Fiorina camps. “That doesn’t mean the company is going to go out of business. But it is going to be a struggle regardless of how this plays out.”