From F.T.
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Hewlett-Packard/Compaq merger hopes fade
By Richard Waters and Elizabeth Wine in New York and Scott Morrison in San Francisco
Published: December 11 2001 20:21 | Last Updated: December 11 2001 22:34
The chance that Hewlett-Packard will be able to keep its proposed $23.7bn bid for Compaq Computer alive long enough to put it to a shareholder vote looks unlikely following opposition from key shareholders.
There are also signs that Compaq is preparing for the possibility of an independent future, analysts and investors said on Tuesday.
Meanwhile, top HP executives were in New York on Tuesday to meet institutional shareholders and gauge their support for the deal. While the company said it remained committed to the deal, it was not expected to push for a vote if it failed to garner sufficient shareholder support.
The HP/Compaq deal has been left hanging by a thread after the Packard Foundation on Friday said it planned to vote against the merger.
Analysts now estimate that HP will need support from about two-thirds of its institutional shareholder base to win approval for the transaction.
That has made it likely that the deal, at least in its current form, will be abandoned before being put to shareholders sometime in February or March, analysts said.
"It is certainly looking that way," said Ram Kumar, the lead analyst at Institutional Shareholder Services, which advises many institutional investors on how to vote at company meetings and could have an influential role in the outcome of the deal.
One of HP's 20 biggest shareholders added on Tuesday: "I think it's a long shot it gets done at this point. I think the market is sort of saying that it's not likely. If I was a betting guy, I think it's better than 50-50 that it does not happen."
Don Young, an analyst at UBS Warburg and a vocal opponent of the transaction, said he also did not believe the deal would go to a shareholder vote. Mr Young and other Wall Street analysts have argued the two companies should call off the deal and focus on reassuring customers.
The possibility of the deal falling apart was heightened after the release of a memo in which Michael Capellas, Compaq's chief executive, said the company to would remain a strong competitor, "regardless of the circumstances whether we are part of the new HP or a standalone company".
"Our responsibility is to maintain a pragmatic view of our business and a clear focus on the future," Mr Capellas said.
Mr Capellas' memo to employees was issue after the Packard Foundation said it would reject the acquisition because it was too risky.
The foundation, controlled by three daughters of one of HP's co-founders, joined with other children of HP's two founders in opposing the deal, effectively creating a voting block with 18 per cent of shares aligned against the transaction.
Thomas Perkins, a Compaq director, on Tuesday said his company wanted to avoid a situation in which uncertainty over the transaction was drawn out over a long period of time. But he said neither company had set a cut off date by which they would call off the deal if there wasn't sufficient support.
"If this thing goes way into next year, that is not good for either company. But we're not there yet," he said.
Observers said Mr Capellas' memo and comments by other Compaq officials, such as Mr Perkins, suggested they were beginning to straddle the fence.
A Compaq spokesman said the officials were simply trying to reassure investors the company would remain strong regardless of the deal's outcome.
HP's top institutional shareholders include Capital Research and Management Company, Barclays Bank, Bank of America and State Street Corporation.
And
HP deal faces remote control
By Richard Waters in New York
Published: December 11 2001 21:30 | Last Updated: December 11 2001 21:47
An analyst at a little-known company in Rockville, Maryland, could well end up with the deciding say in the biggest technology deal ever attempted: the planned merger of Hewlett-Packard and Compaq Computer.
While the outcome of the troubled bid is one of the hottest questions on Wall Street and in Silicon Valley, Ram Kumar, the analyst involved, freely admits that he has no background in either finance or technology.
The unusual prominence of Mr Kumar and his firm, Institutional Shareholder Services, owes much to the decision by the families of HP's founders to vote against the merger. With 18 per cent of the votes already lined up against the deal, ISS's influential role in helping big mutual and pension funds to decide how to vote could well decide if the merger lives or dies.
Mr Kumar, who trained as a lawyer, has had an influential role in other big disputed mergers.
He was the lead analyst earlier this year behind ISS's decision to back the bid by First Union bank for rival Wachovia - a recommendation that helped to defeat a rival offer from SunTrust Banks. Now ISS is at the centre of the campaign being waged between the warring factions at HP. Senior executives from the two computer companies - as well as representatives of the Hewlett and Packard families, who oppose the deal - are set to visit Maryland "in the next two weeks" to put their sides of the story.
Set up to advise institutional investors, mainly on corporate governance issues, ISS has come to have an important role in how many big shareholders cast their votes in company ballots. With offices in London and the Philippines, and plans to move into Continental Europe and Japan, it is also seeking a bigger voice in shareholder votes around the world. ISS's influence is greater following a merger this summer with its biggest rival, Proxy Monitor. The combination has created a private company that advises 700 institutional investors on how to vote at company meetings.
Those investors control equities worth "trillions of dollars", says Pat McGurn, an ISS executive. Some institutions follow ISS's recommendations automatically when casting votes at company meetings, though most also carry out some form of independent analysis when deciding on big strategic issues such as a merger.
ISS's influence is magnified by the fact that some institutions give it total power to vote their shares.
In the HP deal, for instance, Barclays Global Investors, one of HP's biggest shareholders, has handed voting control to ISS to avoid the appearance of a conflict of interest, since one of its employees sits on the HP board.
While Mr Kumar refuses to prejudge the case, comments from other ISS executives suggest that HP and Compaq could be facing an uphill battle. Richard Ferlauto, a vice-president, told the FT last week: "It's a tough deal to support right now, but we're taking a wait-and-see attitude because we are not sure we've seen the final terms of the deal."
Patrick McGurn, another ISS executive, says it has been "fairly rare" for the company to come out against an agreed merger. But he adds: "Scepticism [about deals] has been growing over the past couple of years, as shareholders have seen some of these large mergers fail to produce value." |
