Finally, a vote on epic Silicon Valley deal

This was never going to happen quietly.

From the September day when computer giants Hewlett-Packard and Compaq announced their intention to merge, there has been controversy. One day after, skeptical investors sent HP stock to its biggest one-day decline since 1987. Months later, HP's two biggest shareholders - the heirs of founders David Packard and William Hewlett - said they opposed the $21 billion deal.

Tomorrow, HP stockholders will finally vote - determining the future of not only the largest computer-industry merger ever, but also, perhaps, HP CEO, Carleton "Carly" Fiorina, the most powerful woman executive in the US. But the intervening months have been far more divisive than many expected.

From press releases to full-page newspaper ads, each side has attacked the other with an edge often seen only in city council elections or daytime dramas. With Hewlett's eldest son leading the crusade against the deal, the debate has taken on the aspect of a family feud, with each side parsing the late founders' words to prove they are carrying on the "HP Way."

Such acrimony is not altogether unexpected in a vote so close that even experts won't hazard a guess. But there's more to it than that. Beyond Silicon Valley, it points to the uncertainty of today's high-tech economy, as falling PC sales meld a leaner industry searching for the next big thing.

Around here, though, it's a defining moment for Silicon Valley's oldest and most-revered start-up. With the first families pitted against a new guard, many see this as a struggle for the soul of one of America's most unique companies.

"This is not a hostile takeover," says Rich Torrenzano, a New York investment analyst, "but it seems to have all the aspects of one - and then some."

HP derides Walter Hewlett – board member, Hewlett heir, and antimerger leader – as "a musician and academic" who "has never worked at the company."

Mr. Hewlett strikes back at Fiorina in a newspaper ad: "Did you know HP's CEO has never led a transaction of this scale or complexity but does have a record of failed integration and acquisition attempts?"

In corporate circles, barbed accusations may not be unusual – especially with $21 billion at stake. But this drama has not just played out in shareholder mailings or company rallies. It has engrossed an entire community.

To understand why, is to understand what HP means to Silicon Valley. Santa Clara County, the heart of Silicon Valley, is a progressive place that offers health care for all uninsured children under age 18. Hewlett-Packard, with its traditions of promoting from within and avoiding layoffs, appeals to that sense of community. Indeed, most feel it symbolizes the best of Silicon Valley – a bedrock belief that companies can better their cities.

"People here have so much respect for HP, and there's almost a sense of regret that all this happened," says Doug Henton of Collaborative Economics in Mountain View, Calif.

But the debate is more than a personality conflict. From the beginning, there have been business concerns.

For one, nothing like this had ever worked before. In fact, big money, high-tech mergers are renowned for their historic failure. Two of the biggest involved Compaq, when it consumed Tandem and Digital.

It turns out that melding cultures in the free-form world of computing, where each company develops its own distinct environment, is a time-consuming and often polarizing process. "When two companies of this size merge, a culture clash is inevitable," says Eric Rocco, vice president of the Gartner Group.

To that, many analysts add that the merger would only link HP more strongly to a faltering personal-computer market. Hewlett-Packard was never a leader in PC sales even when Americans were buying every two years. Now that they're putting off buying for new computers for years, why would HP want to join the No. 2 PC producer? economists ask.

"Silicon Valley is always growing on one end and dying at the other," says Richard Carlson of Spectrum Economics in Mountain View. "This merger is on the dying end."

HP feels it has good answers. Some 900 employees from HP and Compaq have spent roughly 500,000 hours working on the cultural and logistical transition. Moreover, the merger isn't just about PCs, HP says, it is also about Compaq's service and solutions sector, which helps businesses manage computer systems.

"We knew going into this that it would take some time for investors to understand the strategic rationale," says Rebecca Robboy, an HP spokeswoman.

On the eve of the vote, though, it's still unclear who's winning. While some major investors, including Putnam Investments, have pledged their support to the deal, others – ranging from the California Public Employees' Retirement System to Wells Fargo – have sided against the merger. Whatever happens, much work remains.

"Alone, they have problems going forward. Together, they have problems going forward," says Mr. Torrenzano, "I'm not sure what they've accomplished."