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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: hlpinout who wrote (94157)	12/11/2001 6:30:50 PM
From: hlpinout	Respond to of 97611

December 11, 2001 13:37 Uphill Merger Battle Pushes Down Shares of Hewlett-Packard, Compaq By Therese Poletti, San Jose Mercury News, Calif. Dec. 11--Shares of both Hewlett-Packard and Compaq fell Monday as investors realized that the two companies face an uphill battle with their controversial $24.6 billion merger. On Friday after the close of U.S. markets, the David and Lucile Packard Foundation, HP's largest shareholder, which owns 10.4 percent of the total shares outstanding, said it is opposed to the merger. With the Packard Foundation, one of the largest philanthropic organizations in the United States, now opposing the deal, heirs of both HP's founders Bill Hewlett and Dave Packard have come out against the proposed marriage. While the Hewlett and Packard heirs control only about 18 percent of the combined stock, analysts and investors believe that organized opposition bearing the names Hewlett and Packard could sway some investors who are on the fence. "It was Wall Street's acknowledgment that there is much greater likelihood that this deal does not happen," said David Katz, president of Matrix Asset Advisors in New York, which has said it opposes the deal. "The board has to be considering their options." Matrix owns about 979,000 shares of Compaq and 459,000 shares of HP. Shares of Palo Alto-based HP, a Dow component, fell 52 cents to $23, along with a broader decline in the overall stock market. Compaq of Houston lost 14 percent, or $1.62 to $9.70, as arbitrageurs who trade merger stocks bet on the increased likelihood that a deal will not happen. Dan Niles, a Lehman Brothers analyst, said he believes that there is now a good chance that the HP board will decide not to even bring the deal to a shareholder vote. But both HP and Compaq said they remain steadfastly committed to the deal. A spokeswoman for HP declined to provide any details on the company's plans to deal with the latest setback. "We are staying the course and taking the steps needed to pursue a successful shareowner vote," said Rebeca Robboy, a spokeswoman for HP. She said that over the coming weeks, the company will continue to meet with institutions and other shareholders to provide more information. Venture capitalist and Compaq board member Tom Perkins said the companies were surprised by the Packard Foundation's vote, but that it did not deter them from their plans. "This is really a struggle for the soul of Hewlett-Packard," said Perkins, who is one of the founding partners of Kleiner Perkins Caufield & Byers. "This is a bigger deal for the family members. I don't think their decision was an economic one. Is HP going to be a rather stable company, more like Polaroid or Xerox, or is it going to be more like IBM, aggressive and growing? And I think they have spoken." David W. Packard, in his initial protest of the merger last month, said one reason he was opposed to the deal was because much of the cost savings would come from massive layoffs of at least 15,000 employees, something that he said did not agree with the culture his father fostered. Perkins said the plan is to "make this thing happen," but that HP is in the driver's seat with those plans. "This is a long way from finished. Communication is the fundamental thing." However, some on Wall Street are not gleaning much from the companies' latest communiques. "Every time they say they will show you more and you will really love it, the analyst reports coming out of those meetings are saying, 'What's new?' " Katz said. "There are enough major concerns out there that no matter what they say, you are not going to believe it until three years after it happens." The spotlight will now be focused on the largest institutional investors and Institutional Shareholder Services of Bethesda, Md., which advises institutional clients on how to vote for certain mergers. ISS will be voting on behalf of Barclays Global, which is the second largest institutional shareholder of HP. ISS has not yet said what its recommendation to its clients. -----