Foundations Play Role in Hewlett Merger
SACRAMENTO, Calif., Nov 18, 2001 (AP Online via COMTEX) -- California's Hewlett
and Packard foundations, born of Silicon Valley's most enduring success story
and enriched by a 1990s stock boom, are playing a high-wire act seldom seen in
American business.
With billions invested almost entirely in the company's lagging stock and
fearing for its future bottom line, the foundations are questioning
Hewlett-Packard Co.'s proposed $21 billion merger with Compaq Computer Corp.
It's an unlikely role, analysts said, for philanthropic organizations accustomed
to a quieter preoccupation: giving away hundreds of millions of dollars. But as
minority shareholders, the 1960s-era foundations and family members who control
17 percent of the company stock, have suddenly become high-profile contenders
for Hewlett-Packard's future.
The foundations and heirs of the company, launched in a garage on the eve of
World War II, fear that merging two weakened companies might create one anemic
performer. Amid talk of layoffs, they also criticize the company's drift from
its traditional paternalism.
The tension is mindful of past quarrels between family foundations and their
parent companies, said Charles Elson, director of the Center for Corporate
Governance at the University of Delaware.
"It's happened before. The St. Petersburg Times was classic," he said. There,
the Poynter family institute that controlled 60 percent of company stock clashed
with minority investor Robert M. Bass. Bass, much like HP's new chief Carly
Fiorina, clamored for change in the company's style, and for higher profits.
Eventually, the Poynter Institute paid him $57 million to leave.
Elson also cites Readers Digest, where a company overhaul and changes in its
foundation structure raised a stir. This year the company provided independence
to several foundations worth $1.7 billion. All had chafed under restrictions
that prevented them from unloading poor-performing Readers Digest stock.
The Hewlett and Packard Foundations also remain mostly invested in their parent
company stock, which has plunged since spring 2000.
"They want short-term results as much as long term because that's what supports
the work they do, explains Carle Howe, principal analyst at Forrester Research
in Massachusetts.
"They're like any other organization," he said. "They need cash."
Charitable and philanthropic foundations like the Hewletts and Packards exploded
with new money during the 1990s technology boom. The New York-based Foundation
Center reports the Packard Foundation had $13 billion in assets by 1999; the
Hewlett Foundation, $2.7 billion. Assets among 50,000 foundations nationally
doubled between 1995 and 1999 to $448 billion, it reports.
The riches launched an explosion of new grants among foundations required to
give away 5 percent of their assets every year.
In 2000, foundations gave $27.6 billion to social causes ranging from public
health to the environment, said Loren Renz, the center's vice president of
research. The last three years the Packard Foundation emerged among the top four
donors, giving more than $1.5 billion to the arts, environment, science and
children's' causes. Only the Bill and Melinda Gates Foundation, Ford Foundation
and Lilly Endowment gave more. The center ranked the Hewlett Foundation 17th,
for $224 million in grants during 1999 and 2000.
"This period was just unprecedented," said Renz.
But the best of times is over.
The Packard Foundation's average value this year was $7.5 billion - nearly half
its 1999 value - said chief financial officer George Vera. In turn, the
foundation trimmed its original $550 million grant-making budget for 2000 to
$475 million. Next year's budget for new grants, a decision expected next month
by the board of directors, may be lower, said Vera.
The Hewlett foundation couldn't be reached for comment.
The downturn has sowed anxious whispers among Hewlett and Packard's large stable
of recipients. It's also raised eyebrows in the financial community.
"Obviously, good portfolio management suggests diversification," said Elson.
Unlike most of America's 50,000 charitable and philanthropic foundations, which
diversify their portfolios to ride out tough times, the Hewletts and Packards
invest nearly all their billions in the family business.
The fall in technology stock prices has hit foundations like Packard and Hewlett
disproportionately hard, said Renz.
"They are the exception, not the rule," she said. Others with most of their
investments in family businesses: the Kellogg and Robert Wood Johnson
foundations and Lilly Endowment.
Vera said there's been "limited discussion" over the years about diversifying
Packard's investment portfolio.
"Dave Packard told his children that there was no requirement to remain in HP
stock," he said. "He thought it was a good company. If we were ever to consider
diversifying we had to consider the impact on the company and the communities it
operates in.
"Any diversification we might do in the future would be over a long period of
time, but we have not even decided to do any diversification at this stage."
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On the Net:
packard.org
hewlett.org
By JIM WASSERMAN
Associated Press Writer |
