Support For HP-Compaq Deal
With a shareholder vote two weeks away, Hewlett-Packard Co. got a crucial endorsement for its $22 billion acquisition of Compaq Computer Corp., increasing the companies' chances of completing the biggest merger in high-tech history.
After reviewing piles of documents and hearing personal appeals from HP executives and merger opponent Walter Hewlett, Institutional Shareholder Services — a key adviser to major investors — said Tuesday the deal could be an excellent long-term move despite its sizable risks.
As many as 40 percent OF HP shares are said to be held by investors influenced by the group, reports CBS MarketWatch's Susan McGinnis.
HP chairwoman and chief executive Carly Fiorina said she was gratified by the ISS recommendation, but said it doesn't "seal the deal." She declined to predict the March 19 vote.
"We think this is a significant vote of confidence," she told reporters. "The momentum is clearly moving in our favor."
Walter Hewlett blasted the report, saying ISS "missed the point." In a statement, Hewlett said he still expects to win the proxy fight because many investors independently evaluating the deal agree with his arguments.
Analysts had said a positive report from ISS would leave HP with a 50-50 chance of winning the proxy fight, while a negative one would have been seen as fatal for the deal.
That is because more than 20 percent of HP shares, including those held by the Hewlett and Packard families, are lined up against the acquisition, with only about 5 percent in the company's camp.
The report, released after the close of trading on the New York Stock Exchange, sent HP shares down 2.7 percent to $20.05 in the extended session. Compaq shares rose 5 percent to $11.12 in after-hours trading.
A narrowing in the gap in the companies' stock prices indicates increasing confidence on Wall Street the deal will happen.
The next big step before the vote would be approval from U.S. antitrust regulators, whose verdict is expected any day now, Fiorina said.
HP and Walter Hewlett have been locked for months in a bruising, political-style campaign for shareholder support, and it is expected to only intensify as the shareholder vote gets closer.
"ISS clearly has a predisposition to support management and makes a general presumption that boards do the right thing," Hewlett said in his statement. "In the post-Enron world, it is obvious that these assumptions need to be questioned. This is especially the case here."
Palo Alto-based HP and Houston-based Compaq believe that together they will become a dominant force in several technology markets while improving the finances of their struggling personal computer divisions and generating $2.5 billion in savings.
Hewlett and other opponents worry that absorbing Compaq into HP would be a difficult and distracting process, and that Compaq would dramatically increase HP's exposure to the slumping PC business at the expense of the profitable printing and digital imaging division.
Although ISS said it agreed integrating the companies will be daunting, it concluded they appear up to the task. This is "one of the most exhaustively planned combinations ever," ISS said.