- The Washington Times - Tuesday, November 12, 2002

NEW YORK (AP) Michael Capellas quit as president of Hewlett-Packard and its difficult integration of Compaq Computer Corp. yesterday, apparently with an eye on another sizable challenge: the leadership of bankrupt WorldCom Inc.
Mr. Capellas would replace John Sidgmore as chief executive at WorldCom, the Mississippi-based telecommunications provider that admitted a $9 billion accounting fraud and is mired in the biggest bankruptcy in U.S. history.
Mr. Sidgmore has been considered an interim replacement for WorldCom founder Bernard Ebbers, whose high-flying ways have made him one of the central characters in the telecommunications industry's bust.
WorldCom spokeswoman Julie Moore would not comment on the search for a chief executive. But HP's announcement that Mr. Capellas was leaving to "pursue other career opportunities" came hours after the Wall Street Journal reported that he had become the front-runner to succeed Mr. Sidgmore.
WorldCom reported yesterday that it had a loss of $108 million in September. Sales were $2.3 billion, and earnings before interest, taxes, depreciation and amortization were $416 million in the month.
Mr. Capellas' departure sent HP shares sliding $1.83, nearly 11 percent, to close at $14.85 on the New York Stock Exchange.
Several analysts said HP will miss Mr. Capellas, who was Compaq's chief executive for three years before HP's $19 billion acquisition of Compaq in May. His hyperkinetic, workaholic style made him a natural at overseeing HP's daily operations. Some analysts worried that other former Compaq executives would follow Mr. Capellas out the door.
But Palo Alto, Calif.-based HP said Mr. Capellas won't need to be replaced, because Carly Fiorina, the chairman and chief executive, will assume his duties. Business units that reported to her before the Compaq acquisition will do so again.
HP spokeswoman Rebeca Robboy portrayed Mr. Capellas' resignation as a sign of his confidence in the company's ability to keep carrying out the complex Compaq integration.
"The process and teams he put in place are functioning well," she said.
Lehman Bros. analyst Daniel Niles agreed that Mr. Capellas had essentially completed his post-merger tasks and that it was natural that Mr. Capellas would want to be a chief executive again.
"Michael is a very ethical, straightforward guy," Mr. Niles said. "There's no way in my mind he would ever leave this company if it were a mess."
Also, as part of Mr. Capellas' contract with HP, he now will collect a $14.4 million bonus for which he would have been ineligible if he quit HP more than a year after the Compaq deal closed.
Mr. Capellas, 48, spent more time fighting for the HP job than he actually spent in it.
Mr. Capellas and Mrs. Fiorina announced HP's purchase of Compaq in September 2001, then barely survived a brutal proxy fight with Walter Hewlett, the former HP director and son of company co-founder William Hewlett.
When the deal closed in May, Mr. Capellas became HP's president and a board member. One of his tasks was to reassure employees who were uncertain about the merger and the resulting job cuts, which are reducing the work force from 150,000 to about 133,000.
But Mr. Capellas never bought a house in Silicon Valley, choosing instead to rent a place there and maintain his home near Compaq's old base in Houston.
Mrs. Fiorina said in a statement that she supported Mr. Capellas' decision and appreciated the "dedication and passion he brought to our joint endeavor."
Walter Hewlett, who criticized Mr. Capellas' potential $14.4 million payout during the proxy fight, declined to comment yesterday.

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