SUSIE GHARIB: A mega merger in the computer industry: Hewlett Packard is buying Compaq Computer for $25 billion, creating the world's biggest maker of personal computers. The reaction on Wall Street was skeptical. Both stocks fell sharply on the news. We have two reports this evening, a look at details of the deal, and the regulatory issues. We begin with Scott Gurvey on Wall Street.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The companies say this is a great deal, but Wall Street is not convinced. Hewlett-Packard plus Compaq, using year 2000 figures, would mean $91.2 billion in sales, $4.3 billion in net income and 159,800 employees. It would be the number one worldwide maker of personal computers, and it would come within a hairs-breadth of IBM (IBM) in revenue. So why did HP shares fall a whopping 19 percent in today's trading, while Compaq shares lost 10 percent on the news?

SHEBLY SEYRAFI, ENTERPRISE ANALYST, A.G. EDWARDS: When you have companies like Compaq and Hewlett, which have problems already in each company, just because you get them together doesn't mean you're going to a solve a lot of these problems.

GURVEY: The problems include a historic sales slump. Wall Street is asking if it makes sense to create a company number one in sales for a "comoditized" product?

CARLY FIORINA, CEO, HEWLETT-PACKARD: I think this deal perhaps makes particularly sense - particularly good sense in tough times for technology, because what those tough times are illustrating clearly is that there is an opportunity to get more cost effective and efficient.

GURVEY: Getting cost effective will mean a 10 percent cut in jobs, and even then analysts wonder if a combined Hewlett Packard can match the industry's low cost producer.

STEVEN FORTUNA, PC ANALYST, MERRILL LYNCH: There's going to be distraction issues around this acquisition and integration effort that could benefit Dell in the short medium term, because they're going to be keeping to their knitting whereas these guys are more about integrating their very complex business areas.

GURVEY: Integrating two giants into a colossus is always difficult. Compaq's CEO Says it can be done.

MICHAEL CAPELLAS, CEO, COMPAQ: The economics are clear, the strategic fit is clear, will the chemistry and the culture work? And when you could actually watch it is when you can sort of say, "yes, this is actually going to work."

GURVEY: Analysts say more deals in the sector are likely, although they will be due more to necessity than to opportunity.

MEAN GRAHAM-HACKETT, COMPUTER ANALYST, STANDARD & POOR'S: I think that it's a deal that needed to be done to take out excess capacity in the PC and server industry. But I don't think the combined entity is a much stronger player than they would have been on their own six months ago.

GURVEY: The companies hope to close the deal in the first half of next year. Scott Gurvey, "NIGHTLY BUSINESS REPORT," New York.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Darren Gersh in Washington. Weeks ago, Hewlett-Packard and Compaq set up a special committee to study the anti- trust issues raised by this high-tech marriage. And after careful review, HP CEO Carly Fiorina says she's confident there will be no surprises like the European Commission's decision to block the GE (GE)-Honeywell (HON) merger. To begin with, this is a different deal in a very different industry.

CARLY FIORINI, CEO, HEWLETT PACKARD: This is an industry with millions of customers, not a couple. It is an industry with very low barriers to entry, particularly the PC and low end of the server business. It's an industry with intense competition.

GERSH: If approved, HP's deal to buy Compaq will create the industry's leading consumer brand, with a 19 percent share of worldwide computer sales-Dell (DELL) is second with 14 percent, IBM Next at 7 percent. For servers the combined HP would command would command an even larger sharet, 31 percent, versus 25 percent for IBM and 15 percent for Sun Microsystems (SUNW). Numbers like that will surely raise red flags with antitrust regulators in the US And Europe, but former Justice Department official, Will Tom, does not think his former colleagues will be mesmerized by market share. Even in the server market, Tom says there is fierce competition.

WILL TOM, ANTITRUST ATTORNEY, MORGAN, LEWIS & BOCKIUS: The operating systems on which they run are out there and so there aren't a lot of barriers that would keep either existing competitors from expanding, or new competitors from penetrating that space.

GERSH: Compaq and Hewlett Packard dominate PC sales at retail stores, but the companies argue competition from the Internet will keep prices down. Rapidly changing technology may also reassure regulators that competition will not be harmed.

CHRISTOPHER KELLY, ANTITRUST LAWYER, KAYE SCHOLER LLP: It is very, very difficult to know what the industry is going to be like, let alone who is going to be in it two years from now.

GERSH: But antitrust experts say the technology involved in this merger is complex, and may extend the time it takes regulators to review the deal. Darren Gersh, "NIGHTLY BUSINESS REPORT," Washington.

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

SUSIE GHARIB: Earlier today, I talked to the CEOs of both companies. I began by asking Carly Fiorina of Hewlett-Packard why she did the deal.

CARLY FIORINA, CEO, HEWLETT-PACKARD: We're doing this deal because the technology landscape is changing fundamentally and has been for a couple of years now. Customers are demanding different things of their I.T. partners, and I mean consumers as well as businesses. And if you look at the power of these two companies together-and we've looked at it very carefully-it's clear that we can deliver a much improved value proposition to customers and we're creating, we think, a game changing move here.

GHARIB: Mr. Capellas, what is Compaq getting out of the deal? It's obviously not a merger of equals. The new company is going to be called Hewlett-Packard and you're going to be the number two person in charge.

MICHAEL CAPELLAS, CEO, COMPAQ: If you look at the combination of first the products and the markets we serve, there is an unbelievable national synergy. We have high end computation. We have great Web servers. There's a great storage play that comes together. There is a UNIX play. There's software that brings it together. The products are complementary. In terms of number two, I'm absolutely comfortable with making this contribution. I am absolutely comfortable with the relationship. I absolutely intend to stay on and do what I can and-

FIORINA: And I'm delighted to have him as a partner, absolutely delighted.

CAPELLAS: This is a-yes, this is honestly not an issue. As long as we serve employees and serve customers, I'm in good shape.

GHARIB: Is it fair to say that Compaq couldn't make it alone?

CAPELLAS: I would argue that we had put an awful lot of the tough work behind us. We've gone through a very fast and effective cost reduction program. We worked very quickly to get our distribution model in good shape. And so, and, in fact, what you're seeing is because we're both making progress towards where we want to go, that made this possible to do. So I don't think we would be here at all if we weren't actually sort of headed down a common path.

FIORINA: I also think, Susie, if I may, each of these companies individually were strong companies.

CAPELLAS: Absolutely.

FIORINA: Good balance sheets, lots of scope and scale, wonderful employees. This is about a game changer.

CAPELLAS: Absolutely.

FIORINA: We are changing the game and we are playing to win, and that's why we've done this.

GHARIB: Well, execution. One of the big questions is how are you going to put together two massive companies, two companies that are facing strategic and tactical challenges and in an economic climate that's also very challenging? And yet you're so confident.

FIORINA: Well, I think we are confident we can do this and we are also sober about what it takes to do it. And by the way, I think the fact that we're sober makes us confident. There's no question there's a lot of work to do here. But the first thing you've got to know is we have planned it out pretty carefully. In fact, we had done detailed business plans and detailed integration plans before we ever called the first banker. And the reason we did that is because we wanted to be sure are we aligned in terms of the value drivers of this combination? We've thought about it, we've planned it, we have the key people in place, we have the key decisions already made. And so we think we are in a position when we get regulatory approval to execute with that discipline and speed and decisiveness. And we recognize we're going to have to prove that to people.

GHARIB: Mr. Capellas, you know how hard it is to put together two big tech companies. I mean some people would say that the Compaq/Digital Equipment merger was not all that successful. What are you confident about this deal?

CAPELLAS: What you have to look at is when you see the compelling opportunities and the vision to really become a value leading company in the industry, you have a compelling vision to get there. This is not about what the two are doing individually. It's about collectively the growth opportunities you have. And as you look forward to the industry, this industry will grow. Growth will come back and when it does, this is a powerful, compelling vision. The second one is, I think you've got some lessons learned and I think you have to apply those lessons learned, which is be decisive, stay absolutely consistent to your road map and move forward.

GHARIB: Wall Street is saying that this deal is fraught with risk. What do you think is the biggest risk, Ms. Fiorina?

FIORINA: Well, I think clearly execution is a risk. Now, we think we have mitigated that risk by planning for it carefully and, indeed, I think Michael deservedly gets credit for having completed the acquisition of Digital in an effective way. And so we are learning the lessons Michael learned and applying them.

GHARIB: The Wall Street reaction has been very skeptical, both of your stocks suffering on the news. What is Wall Street missing here?

CAPELLAS: Well, I think the first place is this is a really big deal and it has, you know, huge, huge implications for the industry. And so I think, as Carly absolutely said, is in a tough market people are going to take a little time to look at the news, to digest it and to understand it overall.

GHARIB: Investors are already looking at Hewlett Packard itself with some creditability issues. How are you going to sell this deal to shareholders?

FIORINA: Well, we're going to sell it by being clear around why we did it, clear around what the value is both in terms of the bottom line and the top line, and clear, as well, in terms of the execution and then we're going to go do it.

GHARIB: Thank you both very much. Good luck to you.

FIORINA: Thanks.

GHARIB: Miss Fiorina, Michael Capellas, thank you very much.

CAPELLAS: Thank you so much.

FIORINA: Thanks.

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

PAUL KANGAS: In the current market, just finding a mutual fund with a positive return is a triumph. So would you believe that tonight we'll be talking about a fund that has a strong double digit return for the year to date? That fund is Boston Partners Small Cap Value Fund II, and while it's been down in recent weeks, it's still up almost 40 percent since January and up 54 percent over the last full year. Since its inception three years ago, the portfolio manager of Boston Partners Small Cap Value Fund II has been David Dabora, and he joins us now from San Francisco. David, welcome to NIGHTLY BUSINESS REPORT.

DAVID DABORA, BOSTON PARTNERS SMALL CAP VALUE FUND II: Thank you, Paul.

KANGAS: First, how have you managed to run up a record like that in a market like this?

DABORA: Well, we've had good stock selection, which has been a direct result of our value oriented investment philosophy and process at Boston Partners.

KANGAS: What are some of criteria that you use?

DABORA: We're looking for undervalued stock, stocks selling at a discount to their intrinsic value, companies with sound business fundamentals and a catalyst to unlock that value that we see in those stocks.

KANGAS: Are you still finding some bargains among the small cap sector?

DABORA: Yes, we are. We, a couple of the larger holdings in the portfolio, Navigate Consulting , a consulting company based out of Chicago, business is getting better, sales at 11 times earnings, very attractive.

KANGAS: Give us some of the trading symbols there of these stocks you like, and the largest holdings.

DABORA: Yes, Navigate Consulting ticker is (NCI). We also like Apria Health Care Group. It's in the home service, the home health care service area. The ticker is (AHG). And we like a small retailer, Pier One Imports, ticker (PIR).

KANGAS: Very good. You know, you have now almost a quarter of a billion dollars in assets in the fund. And I believe the fund is still open to new investors. But do you have any plans to close it any time soon?

DABORA: The fund is still open. We would anticipate closing it about year end at approximately $500 million under management.

KANGAS: Finally, David, what about the tech stocks? I mean we saw a nice rally today which faded badly. Are there are still some bargains there? Are you considering them?

DABORA: Yes. We've had some exposure in the tech area. About 10 percent of the portfolio is in the tech area. A name that we own in the portfolio is Network Associates (NETA) and we plan on finding further bargains as the market avails itself.

KANGAS: OK. Give us a few more that you like in the tech area. There are so many that have been hit hard. We've got about 20 seconds left.

DABORA: Yes. PC-Tel, a soft modem manufacturer, ticker (PCTI), we like. American Management Systems, an I.T. company, ticker (AMSY). We like that one, as well.

KANGAS: All right, David, thanks very much for being with us.

DABORA: Thank you.

KANGAS: And continued good luck.

DABORA: Thank you.

KANGAS: My guest David Dabora of Boston Partners Small Cap Value Fund II.

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

PAUL KANGAS: Stocks on Wall Street opened modestly lower due to some carryover selling from last week's 4.5 percent drop in the Dow and 5.8 percent tumble in the NASDAQ index. At the outset of trading, the Dow fell 50 points and the NASDAQ 15 points before the market steadied and then firmed up as that massive Hewlett/Packard-Compaq Computer combination seemed to stir some bullish enthusiasm. By 10:00 AM, The Dow posted a 15-point gain and NASDAQ cut its loss to four points. Then came the release of the National Purchasing Management's August manufacturing Activity Index which showed marked improvement in production and new orders, suggesting a number of industries are starting to recover. Judging by the spirited stock rally which followed, that was the news Wall Street wanted to hear. By 12:30 PM, The Industrial average was sporting a 212 point, or 2.1 percent, gain at the 10,160 level and the NASDAQ index was up 24 ponts or 1.3 percent. The rally topped out in the afternoon partly due to a less than impressive advance decline ratio and trading. Hardly helping were sizeable losses in both Hewlett Packard and Compaq stocks. The Dow industrial average saw its closing gain slashed to only 47.74 putting it a 9997.49. The NASDAQ index closed with a loss of 34.65 or 1.9 percent. Now stands at 1770.78.

Big board - well, here we go to the Dow Transports Index up 22.24.

The Utility Index up 1.73, but not as good as they were during the day.

The Closing Tick just barely bullish at +177.

Standard & Poor's 500 down .64.

And the S&P 100 up .64..

The MidCap 400 down 1.52.

And a loss of 1.20 in the CRB Bridge Futures Price Index a gain of nearly 13/4 in the New York Stock Exchange Composite Index

Value Line down 1.28.

The Russell2000 Small Cap off 160.

And the Wilshire 5000 lost just over 9 points.

Bond prices posted sharp losses today mostly because that unexpectedly strong Purchasing Manager's report brightened hopes for a comeback in the economy while dimming the prospects for more interest rate cuts. Also this market was very vulnerable to profit taking after last week's strong advance which sent some yields to the lowest levels in about two years.

At the close tax free and corporate issues were down 3/4 to one full point.

And most Treasuries were down even more than that, not the 5-year notes but down 20/32 nevertheless.

A one point loss in the 10-year notes

And the Bellwether 30-year bond down 1 22/32.

And finally the Lehman Brothers Long-Term Treasury Bond Index down 27 1/10 point. Big loss there.

What a rally-and then what a sell-off. It was bad in both directions, depending on how you stand in the market. But the Dow up only 47 3/4 points after being up well over 200. The advance/decline ratio none too impressive, about 8 to 7 in favor of advancers. 153 new yearly highs, though. Only 76 new lows.

Compaq (CPQ) topped the active list on 57.2 million shares. It traded as low as $10.75 and finally closed at $11.08. That stock swap with Hewlett-Packard (HWP) is worth about $12 as of today and that's, of course, after Hewlett's stock dropped $4.34.

Then Johnson & Johnson (JNJ), the big point gainer in the Dow, up $3.44, the company claiming its new Cortistent reduces to zero the chances of arteries reclogging. That's known as restenosis.

GE (GE) down $0.15.

Providian Financial (PVN) had a bad day, down $8.70. The company sees third quarter earnings coming in at $0.82 to $0.84, the Street expecting $0.89. The company also says 2002 earnings will be lower than expected. Banc of America and First Boston among just a few brokerages to downgrade the stock.

Lucent (LU) down $0.30.

AOL Time Warner (AOL) moved up $0.15.

Nokia (NOK) a $0.74 loss.

And then the NASDAQ Cubes (QQ) down $1.16.

Citigroup, tenth in volume, was up $0.41.

Royal Ahold (AHO), this is the huge Dutch grocery chain owner, down $1.59 on news the company is going to buy Alient Exchange. That's a leading U.S. food service. The price, $2.2 billion.

IBM's (IBM) reaction to the Hewlett-Compaq merger, up $1.49.

Lexmark International (LXK), the printer maker, though, down $4.80. Standard & Poor's downgraded the stock from "accumulate" to just "hold" on concern that the Hewlett-Packard-Compaq merger will eliminate Compaq as a major Lexmark customer.

MBNA (XRB) down $2. That's in sympathy with the big drop in Providian (PVN). They're both credit card issuers.

Sante Fe International (SDC) fell $2.32. The company will buy for stock Global Marine (GLM).

And Global Marine's stock moved up $0.60 to $15 a share.

Finally, Wal-Mart (WMT) up $0.40. After the close, the company said an accounting change will add $223 million to the bottom line in the fiscal year 2003.

Anderson Exploration (AXN) had a good day, up $8.34. The company will be acquired by Devon Energy (DVN) for $25.80 a share in cash.

EDO Corp. (EDO), the defense manufacturer, up $1.80. The company V.P. told us policy is not to comment, but he did say he knew of no corporate developments or issues, no statements issued by the company.

Swift Energy (SFV) a $2.09 gain. That's in reaction to a positive report issued today from the First Albany Brokerage.

And Mykrolis Corp. (MYK) down $3.60. Fourth quarter forecasts from the company, lower than expected third quarter revenues of $36 million to $40 million and a loss of $0.38 to $0.45 a share.

SCI Systems (SCI) down $3.02. The company is being acquired for stock by Sanmina (SANM) and Sanmina, on prediction of lower than expected earnings, fell over $2 a share.

National Australia Bank (NAB) down $10.24. T