Capellas To Leave HP for WorldCom
President Michael D. Capellas, a key figure in the hard-fought
the HP-Compaq merger, will resign his position and
is to try to resurrect fraud-plagued WorldCom.
During a five-month proxy battle for shareholder approval,
Hewlett-Packard billed its billion takeover of Compaq
Computer as a merger of equals.
Perhaps no one was more equal than Compaq CEO Michael Capellas,
who was touted as the operations whiz necessary
at the new company. He often shared the stage with H-P CEO
Carly Fiorina and was a key spokesman for the merger. But
six months after the merger closed, Capellas resigned Monday,
apparently on his way to becoming WorldCom CEO.
The abrupt departure, while not unexpected, gnaws
at some investors who thought Capellas would stick around
at least a year. Some supported the controversial merger because
of Capellas. The merger was ratified 51.4% to 48.6% in April.
''H-P knew Wall Street thought highly of Capellas, and smartly
leveraged that appeal to gain a narrow victory,'' says David
Katz, chief investment officer of Matrix Asset Advisors, which
sold its 600,000-share stake in H-P this year. ''The fact
he pushed it as hard as he did, while intending to leave this
year, is mind-boggling.''
In December 2001, three months after H-P announced its intention
to buy Compaq, Compaq's board rewrote Capellas' contract.
Under the revised deal, Capellas would be paid .4 million
if he left within a year of the merger's close in May 2002.
The amended contract also specified Capellas wouldn't be CEO
of the new H-P.
In the months since, Capellas has spent most of his time
visiting Compaq customers and smoothing the transition to
the new company. Only in the past month had he talked to WorldCom
and two other companies about jobs, he said Monday. H-P shares
rose 4% to .50 Tuesday.
H-P repeatedly used Capellas to help sell the merger. It
positioned Capellas -- who is credited with shoring up Compaq
after its rocky merger with Digital -- as an operations expert
who complemented Fiorina's strength in marketing and strategy.
''In pursuit of the merger, (Fiorina and Capellas) did everything
they needed to get it passed,'' says analyst Andrew Neff of
During the proxy fight, Capellas was coy about his
long-term plans. When asked this year by executives at Institutional
Shareholder Services, whose clients own 23% of H-P shares,
Capellas said he ''enjoyed the operations side and looked
forward to putting together the companies,'' ISS Vice President
Patrick McGurn says.
ISS, which directly controls the vote for about 10% of H-P
shares, supported the merger.
''No one had great expectations of him sticking around 60
months. But many expected more than six months,'' McGurn says.