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

To: The Duke of URL© who wrote (95355)	2/21/2002 10:46:51 PM
From: Jerome	Read Replies (1) \| Respond to of 97611

17 days.... and counting.... If they announce prior to the open tomorrow we might have a good day. I will not be influenced by their puffery....What's taking them so long to figure out what we knew a few days after the merger was announced? I can hear the groans on the HWP thread now.... Jerome

To: The Duke of URL© who wrote (95355)	2/21/2002 11:59:53 PM
From: Elwood P. Dowd	Respond to of 97611

San Jose Mercury News: Posted on Thu, Feb. 21, 2002 Institutional investors yield clues to deal's fate By Scott Herhold stocks.comment The fight over Hewlett-Packard's proposed merger with Compaq is usually cast in terms of a family feud within HP itself. But it's really a story of two overlapping sets of stockholders: HP's and Compaq's. And the juncture of those two universes offers clues to how the vote will go. It's the HP vote that counts. But the big institutional investors almost inevitably own Compaq as well. And they're thinking about what will happen to their Compaq stock if the deal flies or fails. They're keenly aware that the conventional wisdom dictates that the deal will help Compaq's stock but hurt HP's. I've spent a day crunching the numbers from the Dec. 31 filings by mutual funds. And here's the bottom line: It's all but impossible to predict the vote from the institutional trading. But looked at from the naked self-interest of the big guys, HP's chief executive, Carly Fiorina, still has a difficult task in pushing this through. Begin with the math: Put aside the 25 percent of HP stockholders who are individuals. They're likely not to vote in heavy numbers. Without that group, Fiorina needs roughly 70 percent of the remainder to win. That's because the HP families and foundations have declared they will vote their 18 percent stake against it. So I took a look at the top 80 institutional holders of stock for both HP and Compaq, measuring what they did with both stocks. The top 80 HP holders -- excluding a handful who hadn't filed by Dec. 31 -- control about 927 million shares, slightly less than half the total shares. So how they go is only an indication, not an absolute prediction. I've divided them into three camps: • PRO-MERGER: In this camp I put all the big stockholders who own more Compaq stock than they do HP, and who added to their Compaq holdings during the past three months. I also threw in Alliance Capital Management, which owns more HP stock but has indicated it will vote for the deal. Count 278 million shares for Fiorina. • ANTI-MERGER: In this category went the people who own more HP than Compaq, and who have added to their HP shares while selling or staying the same with their Compaq holdings. Somewhat arbitrarily, I also threw in the funds that owned only HP stock and sold a significant piece of their holdings in the final quarter, reasoning that this was a vote of no-confidence in Fiorina. Total: 267 million votes for the dissenter Walter Hewlett. • UNDECIDED: Essentially, this was everyone else, including funds selling both stocks or buying both stocks. Total: 382 million shares. If you were to divide them based solely on whether they owned more HP than Compaq, the anti-merger forces would win more than two-thirds. A more sophisticated look, however, might assume Compaq holders would lose more -- maybe twice as much -- than the HP holders would win if the deal fell apart. If the big shareholders vote their proxies on that basis, then Fiorina would do much better: Total: 271 million pro-merger, 111 million against. The bottom line under these circumstances? In the top-80 universe, the pro-merger forces would get 59 percent of the votes. The anti-merger forces would get 41 percent. Given the opposition of the foundations, Fiorina would have to redouble her fabled persuasiveness to pass it. A study by Sanford Bernstein analyst Toni Sacconaghi early last month found something similar. Sacconaghi argued that there wasn't enough cross-ownership of Compaq stock to sway the deal by itself. While he wasn't predicting the future, his ``strawman'' analysis suggested 54 percent of non-individual votes would oppose it. Of course, this is all speculation, even if informed speculation. People buy and sell stock for reasons unrelated to the merger. They vote their proxy not just on the short term. But if you're weighing the tea leaves, it's a start. -------------------------------------------------------------------------------- Scott Herhold's Stocks.comment appears every Monday and Thursday. Write him at the San Jose Mercury News, 750 Ridder Park Drive, San Jose, Calif. 95190; e-mail sherhold@sjmercury.com; phone (408) 920-5877. To read the columns online, see www.siliconvalley.com/mld/ siliconvalley/business/ columnists/scott_herhold/