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By Graham Hayday, 22 October 2001 07:40

NEWS Compaq is coming under pressure to scrap its $20bn merger with HP as already twitchy investors become increasingly nervous about the state of the global economy. Compaq will unveil its third quarter results later this week, with most pundits expecting a fall in sales. Small shareholders are likely to use the opportunity to express their fears about the viability of the tie-up. Preliminary data from IDC shows that Compaq is still the top PC vendor in Europe, but the number of units it shipped in the last quarter fell by 15.7 per cent on the same period last year. Its share of the European market also declined slightly, from 15.5 per cent to 14.5 per cent.
The pressure from individual shareholders will merely compound the difficulties facing the management of the two companies. According to the Sunday Business, David Katz, the chief investment officer of key financial institution Matrix Asset Management, has written a strongly worded letter to both companies asking them to reconsider the deal. The newspaper quotes Katz as saying: "We think there is a significant investment merit in each company separately. A combination clouds the investment case for both of them and creates a great deal of risks. Flawless completion could create a powerhouse, but I have my doubts." The biggest risks are a slump in employee morale, problems winning over existing and potential customers, integration problems and increased poaching by rivals during the merger process, Matrix believes. Institutional investors have already tried to persuade HP CEO Carly Fiorina to abandon the merger, believing that the risks of the tie-up falling apart are greater than any benefits that might accrue.