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HP-Compaq Upate: It ain't over till it's over

[UPDATED MARCH 20, 2002] - Votes are being counted as shareholders judge Hewlett-Packard Co.'s planned $22 billion acquisition of Compaq Computer Corp. After months of public brawling and behind-the-scenes maneuvering- featuring HP CEO Carly Fiorina, who set up the deal and has staked her career on it, and rival Walter Hewlett, son of the company's co-founder who has lead the not-so-friendly opposition-the biggest deal in the history of the computer industry will be either done or dead.

The board of directors of Hewlett-Packard Company Tuesday announced that based on a preliminary estimate of shareowner proxies by its proxy solicitor, it believed it had received enough votes to approve HP's merger with Compaq. The company acknowledged that this is not yet a certified victory.

HP held its shareholders meeting in Cupertino, Calif., on Tuesday, while Compaq shareholders cast votes Wednesday in Houston.

The results of those meetings may take a few days to sort out, officials said. The voting process looks to be a messy affair as shareholders can recast and change their votes as long as the "polls" remain open. Voters sending in proxy cards (white for yeah, green for nay) can send in multiple cards, reversing their votes several times. (It's the last vote that counts.) And big investors and institutional shareholders have been known cast votes in the last few hours of the process.

Although preliminary numbers from the proxy votes, which are sent to solicitors and will be closely monitored by both sides, will be available before the stockholders meetings, the final count might even be weeks away. The vote will be tallied by IVS Associates Inc., a small Newark, Del.-based firm that specializes in shareholder vote tabulations. The company's tabulations typically take several weeks, according to company officials.

"Most analysts predict that the vote will be very close, so each side will use every tool available to win," wrote Mike Elgan, editorial director of Interex, an HP enterprise users group, in a recent article on the group's Web site ("Return of the Chads?," http://www.interex.org).

"That means more hanging-chad-like controversy, accusations of stolen outcomes, 'snippy' public exchanges between combatants and possibly even a lawsuit or two. Even in a best-case scenario, one without a close or disputed outcome, the final results won't be known for several days at least, and possibly not for more than a week."

Shareholder Interex said this week it would vote in favor of HP acquiring Compaq.

Whatever the vote, observers say the outcome may be challenged by the losing side, a development that could keep the fight going even longer.

Walter Hewlett has argued that IT mergers are risky propositions with a long history of failure, that acquiring Compaq will increase HP's reliance on a slumping PC market, and that acquisition is likely to distract HP from its profitable printing and imaging business.

Fiorina has said that acquiring Compaq is HP's best move in a highly competitive market, allowing both companies to leapfrog into a leadership spot in many sectors. The merger will allow the combined organization to offer one-stop shopping to large customers, creating a viable competitor to IBM, she says.

Currently, more than 20% of HP shares--18%-plus controlled by the Hewlett and Packard families-are committed to opposing the merger. Institutional investors, including Bank of America Capital Management Inc., Wells Fargo & Co., Brandes Investment Partners LP, and the pension fund of the California Public Employees' Retirement System (CalPERS) are also against the merger.

Walter Hewlett is the only member of HP's board to oppose the deal. Other board members have made statements in recent weeks signaling their support for the merger. And shareholders on the pro side include Alliance Capital Management Holding LP, Putnam Investments Inc. and Barclays Bank PLC, who account for around 6% of HP's outstanding shares.

Adding weight to the pro side was the recently announced recommendation from Institutional Shareholder Services Inc. (ISS) that its subscribers vote for the acquisition. ISS subscribers own 23% of HP's shares. Still, some of those opposing the deal, including CalPERS, are ISS clients.

As of now, the outcome of the much-anticipated vote is still anyone's guess.

About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at john@watersworks.com.

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