All Things Digital

Hewlett-Packard (HPQ) has wrapped up its acquisition of technology services giant Electronic Data Systems Corp. (EDS), the company’s largest purchase since the $20 billion merger former HP CEO Carly Fiorina orchestrated with Compaq Computers six years ago.

Thankfully, it wasn’t nearly so rancorous.

Valued at $13.9 billion when it was first announced, the deal will more than double the size of HP’s consulting and outsourcing business. It will likely do the same to the $16.6 billion in revenue from services the company made in 2007.

When the dust has settled around the merger, HP will be the second-largest provider of consulting and outsourcing services, behind IBM (IBM). But it will take some doing to get there. “It’s a very significant combination,” Gartner’s (IT) Ben Pring said when the deal was announced back in May. “[But] people who are skeptical of big integrations will have a field day around this. It’s putting together two large businesses with two different heritages. It’s going to be a big culture clash.”

And if HP manages to pull it off? Well, as Fiorina would likely tell you, bigger is better if you can do it right.

“It’s somewhat amusing because we’ve seen this play before. I think this is sort of further evidence that HP really does see value at scale basically, at size,” Illuminata analyst Gordon Haff said in May. “One of the things we’ve seen very clearly over the last couple years is that Carly really had the right idea, she just couldn’t execute on it. She wasn’t wrong for saying HP needed to be bigger, effectively,” said Haff. “If (the merger) does go through we’re going to end up with an HP that looks a lot like Carly wanted it to look.”

What a lousy week for Intel, yeah? First Korea’s Fair Trade Commission fines the company $25 million for abusing its dominant market position there and offering discounts to PC-makers in an effort to drive rival AMD out of the market. And now the U.S. Federal Trade Commission has opened a formal investigation into its pricing practices.

In recent days the commission has subpoenaed Intel, AMD and a number of their PC-maker customers as part of a probe into Intel’s pricing policies, which some claim are engineered to maintain a near-monopoly on the chip market. Intel, which has long claimed that its business practices are well within U.S. law, did so again today in a statement announcing its cooperation with the FTC investigation. “The evidence that this industry is fiercely competitive and working is compelling,” it said. “For example, prices for microprocessors declined by 42.4% from 2000 to the end of 2007. When competitors perform and execute, the market rewards them. When they falter and under-perform, the market responds accordingly.”

But what if a competitor, say AMD, falters and underperforms because a rival is threatening its customers? What if it falters because a rival is using illegal inducements to dissuade PC-makers from buying AMD processors and “knee-capping” those who do? Which is what AMD accused Intel of in its 2005 antitrust lawsuit. In 2000, for example, Michael Capellas, then chief executive of Compaq Computer, allegedly told AMD that Intel had withheld the delivery of some microprocessors he needed for servers because of Compaq’s relationship with AMD. He told AMD he would stop buying from it, saying he “had a gun to his head.” And in 2004, Gateway officials are alleged to have told AMD that Intel “beat them into guacamole” in retaliation for their limited dealings with its rival. And these are but two incidents in a list that includes similar alleged acts of coercion by Intel involving 38 other computer makers, distributors and retailers.

There’s a reason Intel’s processors are in more than four out of five x86 computers sold in the global market and–like the European Union, Japan and South Korea–New York’s attorney general thinks it might be an anticompetitive one.

Empire State AG Andrew Cuomo today opened a formal antitrust investigation against Intel to determine if it violated state and federal antitrust laws by engaging in a relentless, worldwide campaign to coerce customers to refrain from dealing with its rivals. “After careful preliminary review, we have determined that questions raised about Intel’s potential anticompetitive conduct warrant a full and factual investigation,” Cuomo said in a statement. “Monopolistic practices are a serious concern, particularly for New Yorkers who are navigating an information-intensive economy.”

Harder still for Intel rivals navigating a potentially antitrust-intensive economy. Rivals like Advanced Micro Devices, who in 2005 filed its own antitrust lawsuit against Intel, accusing the company of using illegal inducements to dissuade OEMs from buying AMD processors and “knee-capping” those who did.

Harsh accusations, but ones supported by some disturbing anecdotal evidence. In 2000, for example, Michael Capellas, then chief executive of Compaq Computer, allegedly told AMD that Intel had withheld the delivery of some server chips because of Compaq’s relationship with AMD. He told AMD he would stop buying from it, saying he “had a gun to his head.” And in 2004, Gateway officials told AMD that Intel “beat them into guacamole” after they purchased some AMD microprocessors. These are but two incidents among 38 other alleged acts of coercion claimed by AMD in its suit.

Intel, of course, denies them all. Just as it denies AG Cuomo’s. “We believe our business practices are lawful,” said Intel spokesman Chuck Mulloy. “We also believe that the microprocessor market is a competitive market and is behaving just as one would expect a competitive market to behave.”

Michael was moody and inconsistent. He could agree to something on one day and object strenuously the next. … He could be charming and focused. He could be depressed and disengaged. He could be rude and abusive.

“… I told H-P’s board in midsummer [2001] that our biggest problem with integration would be Michael. I said that I would work hard to make him successful, but that we’d need to be prepared to move him out of the company within a year.

“… I concluded one of those conversations by saying ‘Michael is like the little girl who had a little curl right in the middle of her forehead. When he’s good, he’s very, very good, and when he’s bad, he’s horrid.’ “

–Former Hewlett-Packard CEO Carly Fiorina on former Compaq Chief Executive Michael Capellas in her book, “Tough Choices”

If First Data’s board of directors owns a copy of Fiorina’s memoir, they clearly don’t lend much credence to her withering assessment of Michael Capellas. Because this morning, the Denver-based transaction processor said it will name him as CEO following completion of the acquisition of the company by Kohlberg Kravis Roberts & Co. Capellas will succeed Henry “Ric” Duques, who came back to the company in 2005 to oversee its reorganization.

Sharp guy, Capellas. When he left H-P in 2002, he received $14.4 million in severance, plus a $1.9 million incentive payment and $9.6 million to cover his taxes on the payments. When he took over at MCI, he nabbed a $2 million signing bonus. And when he left, he trousered a $39.2 million payout–$11.3 million for three years’ worth of salary and bonus; $18.5 million from a previously disclosed restricted stock grant; and $9.4 million in payments to cover the taxes on his exit package, according to an MCI proxy statement.

As ZDNet’s Larry Dignan notes, it doesn’t take a brain surgeon to chart Capellas’s next moves. They’ll look like this:

• Capellas becomes CEO at First Data and gets hooked up with a sweet compensation package (there are no griping shareholders in private equity);
• First Data goes public again (after all, that’s how KKR will cash out);
• Capellas stays as CEO and perhaps sells First Data to another firm.

Sounds like a plan. All that’s missing is a step in which he pens the 3,390-word memo about how he’s going to “transform [First Data], and do it over the next 180 days.”

When Santa Monica, Calif.-based incubator eCompanies paid $7.5 million in 1999 for the rights to the domain name business.com–nearly twice what Compaq paid the year prior to buy altavista.com, the name of its search engine–conventional wisdom was that the company’s founders were out of their minds. “It is going to be the bargain of the century,” eCompanies co-founder Sky Dayton told Internet World at the time. “It is going to look like we bought the island of Manhattan for $7.5 million and some beads.” That quote made him a bit of a laughingstock in certain circles and landed eCompanies the No. 35 spot on that year’s list of “The Dumbest Moments in e-Business History.”

Well, look who’s laughing now. Business.com is up for sale and some say it could fetch anywhere from $300 million to $400 million from media companies in need of some online growth–Dow Jones or the New York Times, for example. That’s quite a bit of money for what’s essentially a directory of sponsored listings. Still, it does make money–$15 million a year or so. So, a $350-million acquisition price would be 24 times current revenue. Not bad for an initial investment of $7.5 million and some beads …