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HP shareholder nixes Compaq merger
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December 7, 2001: 7:18 p.m. ET
Packard foundation says it will oppose the proposed deal.
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NEW YORK (CNN/Money) - A key Hewlett-Packard shareholder late Friday said it likely will vote against the company's proposed merger with Compaq.
At its quarterly meeting Friday, the board of the David and Lucille Packard Foundation, which holds nearly 10 percent of HP's stock, said it made a preliminary decision to vote its shares against the deal.
"The Board of Trustees understands the strategic considerations being addressed by management, but after thorough study and analysis the Board has preliminarily decided, on balance, that the best interests of the Foundation would be better served by Hewlett-Packard not proceeding with the proposed transaction," the organization said in a brief statement.
Shares of HP gained $1.48, or 6.3 percent, to $25 in after hours trading on Instinet. Compaq fell $1.32, a drop of nearly 12 percent, to $10.
In September, HP (HWP: up $0.19 to $23.52, Research, Estimates) agreed to buy rival Compaq (CPQ: up $0.21 to $11.32, Research, Estimates) in a bid to bolster their competitive positions in a sagging market. Since then, the proposed deal has faced growing opposition from analysts and shareholders.
Other members of the founding Hewlett and Packard families oppose the merger but hold fewer shares than the foundation, whose board is headed by Susan Packard Orr, Nancy Packard Burnett and Julie E. Packard, daughters of company co-founder Dave Packard.
David Woodley Packard, the son of HP's co-founder, said the Packard Humanities Institute, of which he is chairman and which owns 25 million HP shares, or 1 percent of the company, also will likely vote against the transaction when it is put to shareholders.
Walter Hewlett, son of Hewlett-Packard co-founder William Hewlett, also has said he will seek to block the deal. His sisters, Eleanor Hewlett Gimon and Mary Hewlett Jaffe, also have said they will oppose the transaction.
Walter Hewlett said Friday that he has spoken to several HP shareholders and believes there is widespread opposition to the merger. He will now act further to block the deal if it is brought before shareholders.
"If Hewlett-Packard and Compaq decide to put this matter to a stockholder vote, I intend to solicit proxies against the transaction," he said in a statement.
A combined HP-Compaq would not focus on that areas that would increase shareholder value, namely the printer and imaging and higher-end server and services businesses, Hewlett said. The merger would instead increase HP's exposure to the waning PC business.
Together, the Hewlett family members, as well as the revocable trust and the foundation in the family's name, own about 5 percent, or 100 million shares of the stock.
Opposition to the deal stems largely from concerns that the deal would increase the company's exposure to the flagging PC industry; increase its exposure to the low-end server business; and jeopardize its strong position in the printing and imaging business.
The risks involved in combining the assets of the two expansive companies also has raised some red flags on the day.
In October, Matrix Asset Advisors, a major shareholder of both HP and Compaq, urged the two companies to abandon the merger plan, warning that the risks associated with integrating multiple products and business lines, diverse sales force and sales channels outweigh the potential benefits.
In a joint statement released shortly after the Packard Foundation made its intentions known, HP and Compaq said they remain committed to the deal and plan to continue to pitch it to shareholders in the coming weeks and months.
"We are disappointed by the Packard Foundation's preliminary decision. Nevertheless, our responsibility to shareowners, customers and employees requires that we maintain a pragmatic view of the business and a focus on the future," the statement said.
Despite the growing opposition to the deal by very influential groups, Bear Stearns analysts Andy Neff said Friday the deal is still likely to be put before all of the company's shareholders.
"We still think that the deal will go to a vote regardless of the outcome from Packard Foundation," Neff told CNN/Money.
He said a vote would not likely to take place until February at the earliest, after all of the necessary regulatory approvals have been met. 
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