HP Eyes Small Investors to Seal Compaq Deal
Sat Feb 23, 9:47 AM ET
By Jeffrey Goldfarb
NEW YORK (Reuters) - At a trade show a few years ago, Carly Fiorina, the chief executive of storied computer company Hewlett-Packard Co. , hollered over to Joe Dolliver, just another one of the thousands of techies in the crowd at San Francisco's Moscone Center.
Fiorina wowed Dolliver and his pals by remembering his name, although she had just met the Maryland computer serviceman a few hours earlier.
Fiorina will have to impress a lot of people like Dolliver, a small shareholder, if she wants to beat a well-financed opposition to her planned $21 billion merger with rival Compaq Computer Corp..
Dolliver, who owns just 100 shares of HP, hardly seems like an influential power broker. But individual investors will be a critical voting block to decide this merger's fate because, along with HP executives, they own about 29 percent of the company, more than at many other corporations.
"In many instances, retail investors are an afterthought, but for HP they're very important," said one source familiar with HP's plans.
As a result, the company will write and call tens of thousands of small investors just like Dolliver, at least a half-dozen times through mid-March to convince him to vote in favor of the controversial combination.
"Every vote counts," HP spokeswoman Rebeca Robboy said. "We're reaching out to the entire shareowner population."
Pension funds, mutual funds and other big investors with their stakes of several million shares usually garner the bulk of the attention in a proxy fight. Indeed, the decision by the Hewlett and Packard families to vote their 18 percent against the deal has grabbed the headlines.
Walter Hewlett, an HP board member and son of company co-founder Bill Hewlett, is aggressively writing and calling small investors, too, in his proxy fight to quash the deal. He has his own uphill battle because retail investors tend to side with management in proxy fights, proxy specialists said.
Individual investors regularly ignore the enormous proxy packets that arrive in the mail, discarding them as junk mail. But HP needs the proxy cards mailed in because it requires the majority of the votes cast to approve the deal with Compaq, and shareholders who don't vote hurt.
DOZENS OF CALLERS MAKE PITCH
A higher-than-average 60 percent of individual shareholders might vote in this proxy fight, merger experts predicted.
Dolliver already has voted against the deal, but he says he could be convinced to change his mind, which he is allowed to do before the March 19 deadline. Shareholders can vote as often as they like, but the last postmarked proxy card is the one that gets counted.
Dolliver, who has been servicing HP equipment for 25 years, said he bought 1,000 shares of the company 11 years ago. He has sold his stake piecemeal over the years, and dumped 500 shares after the deal was announced in September. He has held on to the rest for tax purposes and so that he would have a say in the merger.
"I'm not a firm believer that this merger is going to make things better," he said. "There's no doubt in my mind that a merger of these two is going to take years to build the synergies they're talking about."
Although Dolliver is unlikely to hear from Fiorina personally, he is almost sure to get a phone call from HP's proxy solicitation firm, Innisfree M&A Inc., which has begun contacting individual shareholders.
Dozens of trained callers employed by Innisfree are trying to convince investors of the deal's merit, sticking to a pitch that has passed regulatory muster. Shareholders who oppose the deal or who are undecided may get repeat calls, according to sources familiar with HP's plans.
In other proxy fights, senior management and corporate board members have called the biggest individual investors, and HP might use the same tactic, the sources said.
"If they each can make 10 calls to significant individual shareholders they're the best ones to do it because it makes someone feel important when they get a call from a senior executive at a company," said Thomas Ball, senior managing director of Morrow & Co., a proxy solicitation firm not involved in the HP-Compaq deal.
"But you don't want them spending too much time on those calls when the time might be better spent focusing on institutional shareholders," Ball added.
Those big investors get face-to-face talks with HP bigwigs. But the HP brass also might try to sway top stockbrokers, who in turn would spread the word to their small-investor clients.
Shareholders also will find their mailboxes stuffed with last-minute pleas in the coming weeks. HP and Hewlett already have mailed so-called "fight letters" that lay out their own views and attack the other side.
Walter Hewlett may have found a tiny edge by getting his materials into people's homes first, before the final onslaught.
"You reach the saturation point fairly quickly in a situation like this," Ball said. "Overly aggressive solicitations can definitely turn people off, so you've got to factor that in."
But history says that backing off doesn't work either.
"If you stop the letters, and you stop the calling, you lose the votes," said a proxy fight veteran, who requested anonymity.
Dolliver, who figures to get some attention over the next month from HP, complained that since his encounter with Fiorina in 1999, she has been almost invisible to the HP service community. A phone call to her old buddy Joe wouldn't hurt. |
