March 12, 2002 03:14
Both Sides in HP Battle Claim Victories with Big Institutional Shareholders
By Therese Poletti, San Jose Mercury News, Calif.
Mar. 12--With one week to go before the March 19 shareholder vote on Hewlett-Packard's controversial $22 billion deal to buy Compaq Computer, both sides are claiming victories among the big institutional shareholders who will ultimately decide the fate of the deal.
Two independent directors of HP, Phil Condit, the chairman and chief executive of Boeing, and Sam Ginn, the retired chairman of Vodafone Airtouch, told analysts and investors Monday that HP believes it has the support of "most" of HP's 20 largest outside investors.
A spokeswoman for Walter Hewlett, the dissident board member spearheading opposition to the deal, disputed HP's claim. "We have a broad range of support," said Joele Frank, the Hewlett spokeswoman. "I'd like to see where their support is... Based on our conversations with the top 20 investors, their comment is absolutely false."
Meanwhile, Hewlett received another public pledge of support Monday as Wells Fargo, which controls about 6.6 million shares of HP, said it will vote its 0.3 percent stake against the merger. The "no" vote from Wells Fargo follows Friday's announcement by the California Public Employees' Retirement System (CalPERS) decided to vote its 7.6 million shares against the deal.
The latest announcement brings the total number of shares publicly committed to opposing the deal to about 20.6 percent of HP's outstanding stock. That includes the 18.1 percent controlled by Hewlett and Packard family members and their charitable foundations, which are opposed to the deal.
For its part, HP has public commitments of support from shareholders owning about 8 percent of HP's stock, including big money managers Alliance Capital Management and Putnam Investment Management. HP, based in Palo Alto, needs to win approval from a majority of shares to go forward with the Compaq deal.
Condit and Ginn declined to identify specific shareholders within the top 20 that they are counting as supporters of the deal. The top 20 shareholders who aren't connected to the Hewlett or Packard families control 31.8 percent of HP's stock, according to BigDough.com.
"While we cannot predict the outcome of the vote, the company is in close contact with HP's top institutional investors, and we believe we have the support of most of our 20 largest shareholders," Condit said.
But he noted, "You don't count votes that way. You count votes on proxy cards that are submitted."
HP argues that the merger will unite two computer companies into a powerful competitor as the computer industry is becoming increasingly commoditized.
Hewlett, the eldest son of HP co-founder Bill Hewlett, argues that the merger will dilute HP's crown jewel -- the printer business -- and broaden its exposure to the low-profit personal computer business.
In recent weeks, the momentum has shifted from one side to the other. After Compaq's analyst meeting at the end of January in New York, some investors said that the pro-merger side appeared to be gaining momentum. Indeed, Michael Capellas, Compaq's chief executive, told reporters that Putnam, which is HP's fourth-largest non-family shareholder, supported the deal.
A month later, at HP's analyst meeting, some attendees said they felt the momentum was swinging back to Hewlett's camp, based on the tough questions being asked of HP management.
Then last week, the pendulum swung back towards HP when Institutional Shareholder Services, which advises mutual funds and pension funds, came out in favor of the deal.
About 23 percent of HP's shareholders are subscribers to ISS, and ISS is directly voting the shares of Barclays Global Investors, which owns 3.1 percent of HP's stock. Patricia Dunn, Barclays' chief executive, is on the board of HP, and Barclays has asked that ISS vote on its behalf to avoid any conflict of interest.
On their conference call Monday, Condit and Ginn were asked repeatedly what would happen if the deal fails to go through.
"Will it be disruptive? Yes," Condit said. "Will it be chaotic? no. If it's a positive vote, it will be to conclude the merger with Compaq. If it is not, it will be go back and reconsider strategic alternatives."
Condit and Ginn said the eight directors and many executives that support the deal will each have to decide whether to stay at the company.
"We will have personal conflicts if this merger is voted down and will have a personal decision to make," Condit said. "Each board member will have to make that choice relatively soon in this case because the entire HP board is up for re-election this spring."
Ginn added that if the board members decide to leave, it will be an orderly departure.
"We won't walk away and pout," Ginn said. "Even if we decide to leave the board, it will be in a professional way."
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