Hewlett-Packard Investors Await ISS Rep
by: iamlongcpq (47/M/boston, MA) 02/10/02 01:02 pm
Msg: 272898 of 272899
Hewlett-Packard Investors Await ISS Report on Compaq Purchase
By Peter J. Brennan
Rockville, Maryland, Feb. 9 (Bloomberg) -- Institutional Shareholder Services, the biggest proxy adviser, may determine whether Hewlett-Packard Co. completes its purchase of smaller rival Compaq Computer Corp., investors and analysts said.
Sometime early next month, ISS will make a recommendation on the proposed $22.5 billion merger that would create the biggest personal computer company. Investors will vote later in March.
So far, shareholders that include the founding families led by Walter Hewlett and representing 18 percent of Hewlett-Packard's shares are opposed to Chief Executive Officer Carly Fiorina's plan to buy Compaq. Shareholders owning about 2.7 percent support the purchase. About 75 percent of Hewlett-Packard's investors have yet to decide.
``They could easily influence 20 percent or more of the outstanding shares,'' said Thomas Ball, a senior managing director at Morrow & Co., an ISS competitor. ``It might even be 30 percent.''
Alliance Capital Management, which owns 1 percent of Hewlett- Packard shares, or 21 million, has said it will support the acquisition. Putnam Investment Management plans to vote its 33.7 million Hewlett-Packard shares, or 1.7 percent stake, for the deal, according to Compaq CEO Michael Capellas. Hewlett-Packard spokeswoman Rebeca Robboy declined to comment on what percent of support the company has.
Walter Hewlett, a company director and the son of Hewlett- Packard co-founder William Hewlett, and Fiorina have met with ISS, seeking to gain support and lock in votes from investors that plan to follow the firm's advice. ISS has about 700 clients who receive its research reports.
Following ISS
Hewlett-Packard's third-largest shareholder, Barclays Global Investors, has said it will vote its 3.1 percent stake as ISS recommends, and analysts say others may do the same.
``The reports will be from each company's perspective and determine whether it's in the best interests of that company's shareholders,'' said Patrick McGurn, a vice president at ISS, which is owned by Proxy Monitor Inc. That means that the recommendations for Hewlett-Packard and Compaq shareholders may come to different conclusions, he said.
Hewlett-Packard shares dropped 40 cents to $20.40 yesterday. They have fallen 39 percent in the past year. Houston-based Compaq fell 7 cents to $11.59 and has declined 48 percent in 12 months.
Institutions
Institutions own about 57 percent of Palo Alto, California- based Hewlett-Packard's stock, according to a regulatory filing. ISS will report its recommendations 17 to 20 days before Hewlett- Packard's March 19 vote, McGurn said. Investors in Compaq, where no organized opposition has emerged, will vote March 20.
Rockville, Maryland-based ISS is studying how the combined company would perform over certain periods, such as 1 year, 3 years and 5 years, he said.
``We're not looking at the next quarter,'' McGurn said. ``We won't come up as definite projections, but how likely it will be (for the company) to make those numbers.''
ISS has received financial projections for the combined company from Hewlett-Packard, Compaq and Walter Hewlett, as well as institutional investors, McGurn said.
``Every money manager in this business has been willing to share their estimates with us,'' said McGurn. He declined to say what percentage of Hewlett-Packard's shareholders are ISS clients.
Dueling Estimates
Walter Hewlett says the merger would reduce the company's shares by $4.50, and estimates revenue would fall by as much as 10 percent in 2004. He blames Compaq's dependence on revenue from low-profit personal computers, saying it would dilute the value of more lucrative businesses, such as printing and imaging.
Hewlett-Packard's analysis says the combination would boost the shares by $5 to $9, and predicts a revenue drop of 5 percent in 2004. The combined company may save as much as $2.5 billion in annual costs, Hewlett-Packard says.
Last week, the European Commission granted antitrust approval for the combination. Compaq shares are trading 11.4 percent below the value of Hewlett-Packard's offer, compared with 37 percent after Walter Hewlett announced his opposition Nov. 6. A narrowing gap signals that more investors expect the deal to be approved.
``It's a pretty close call,'' said Tom Rath, a fund manager for Safeco Asset Management, which manages about $30 billion in assets and owned about 911,300 Hewlett-Packard shares as of December. ``I would think that (both sides) are working hard to persuade voters.'' Rath opposes the acquisition.
Barclays Global Investors will follow ISS's advice to avoid a conflict of interest because CEO Patricia Dunn is on Hewlett- Packard's board, Barclays spokesman Tom Taggart said.
Both sides say they are gaining momentum. Capellas said last week he was more confident about the sale being approved. In a speech Monday, Fiorina said support for the acquisition ``is more than sufficient to win a shareholder vote.''
Walter Hewlett also thinks he's gaining support to stop the deal, his spokesman Todd Glass said Tuesday.
``It's entirely possible that both sides are counting shares from the same institutions and they came away from meetings with positive feelings,'' Morrow & Co.'s Ball said. ``Many times, you go into a meeting with an institution and they don't want to show their cards.''
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