March 19, 2002 03:18
Voting Too Close to Call on Hewlett-Packard-Compaq Merger
San Jose Mercury News, Calif.
Mar. 19--The voting on Hewlett-Packard's proposed $21 billion purchase of Compaq Computer remained too close to call Monday night as both sides pulled out all the stops to woo shareholders before this morning's special shareholder meeting in Cupertino, where the final ballots will be cast.
Shareholders were still receiving green and white voting cards and hefty packets of material Monday from HP management and from opponent Walter Hewlett, son of deceased HP co-founder Bill Hewlett. HP sent out 24-page color brochures touting the deal, helpfully including an express envelope for shareholders to ship their vote back to the company overnight.
As of last night, HP had 9.49 percent of the stock publicly committed to the deal, while opponents had 24.49 percent, according to a Mercury News tally. However, many of HP's biggest institutional investors have not publicly disclosed how they will vote, and some of the top funds are expected to back management. If the voting is close, a final count might not be available for several weeks.
In a major blow to HP Chief Executive Carly Fiorina, HP employees voted stock they own in their retirement plans against the merger by a 2-to-1 margin, according to Hewlett, the dissident director leading efforts to block the deal.
Hewlett spokeswoman Joele Frank said Monday that employees overwhelmingly voted against the deal with shares held in their 401(k) plans, with 16.7 million shares opposed, compared to 8.6 million in favor. The negative sentiment matches polls done by David W. Packard, son of deceased HP co-founder Dave Packard, who is also fighting the deal.
Employees of Agilent Technologies, an HP spinoff, voted their HP shares against the deal by a much greater margin, 8 million shares to 1 million shares, Frank said.
Such strong internal opposition suggests that even if Fiorina wins shareholder approval for the merger, she will have a difficult time integrating the two massive computer companies -- a difficult task under the best of circumstances.
"If in fact it's true that that much are against it, she's got a real problem," said Charles Elson, professor of corporate governance at the University of Delaware. "If those who have to implement it are opposed to it, it tells you how Hewlett's arguments had merit and how the initial market reaction to it had merit."
HP spokeswoman Judy Radlinsky said Hewlett's employee vote count was "speculation."
"HP employees vote their shares a number of ways," she said. HP declined to say how many of its 88,000 employees participate in the retirement plan, although employees own about 2 percent to 3 percent of HP's stock.
Hewlett's spokeswoman Frank said the retirement plan vote was significant because the voting is confidential. Some HP employees have said they are afraid to vote against the merger, for fear that management will find out and they will be laid off in the 15,000 job cuts expected if the deal closes.
Both sides argued that they had momentum going into the meeting today, which begins at 8 a.m. at Flint Center in Cupertino and is expected to last about two hours.
"We remain confident for a positive vote," said HP's Radlinsky. HP noted that in the past few days, the Florida State Board of Administration, Pennsylvania Public School Employees Retirement System and State Teachers' Retirement System of Ohio have all said they plan to vote for the merger.
On Hewlett's side, the Teachers Retirement System of Texas joined other pension funds Monday in saying it will vote it 0.3 percent of stock against the deal.
Individual investors, who hold about 25 percent of HP's stock, could be the swing vote, said Daniel Kunstler, a J.P. Morgan Chase analyst, who thinks the odds favor a rejection of the deal. "It's too close to call."
Still, HP claimed to be making substantial progress with institutional investors, such as pension funds and mutual funds, which control about 57 percent of HP's stock.
Fiorina "will either be a hero or a goat by tomorrow," said David Katz, president of Matrix Asset Advisors, which was one of the first funds to come out against the deal.
--By Therese Poletti and Tracy Seipel
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