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With Hewlett Decision Near, Merger Foes Talk of Gains
March 18, 2002
By STEVE LOHR
As the Hewlett-Packard (news/quote) proxy fight approaches
tomorrow's deadline, Walter B. Hewlett is winning the
battle for the hearts and wallets of individual investors,
according to the firm that is trying to help Mr. Hewlett
drum up votes.
"We're going to win the retail campaign, and the spread is
growing," Daniel H. Burch, president of the proxy solicitor
MacKenzie Partners, said on Friday night.
Individual investors represent only about 25 percent of
Hewlett-Packard's shares. But as the deadline draws near
for stockholders to vote for or against the company's
proposed acquisition of Compaq Computer (news/quote), each
side is looking for any edge in a contest considered too
close to call. Mr. Hewlett, in his campaign opposing the
deal, has branded it "a $25 billion mistake" in letters to
shareholders and in newspaper advertisements. The deal, he
has repeatedly said, would increase the company's
dependence on the low-profit personal computer business and
would dilute the role of its lucrative printer unit.
Besides, he says, big mergers in the fast- moving computer
industry have all come to tears.
Mr. Hewlett's simple points, expressed with emphatic alarm,
have resonated with individual shareholders, says Mr.
Burch, whose firm is an important adviser in the campaign
to urge investors to oppose the merger. Mr. Burch said he
based his confidence on the daily reports that both sides
in the battle have been receiving for weeks from Automatic
Data Processing (news/quote), the main company collecting
proxy ballots.
Alan Miller, co-chairman of Innisfree M& A, the proxy
solicitor for Hewlett- Packard, is not willing to concede
the individual vote, calling it "about even." But he
acknowledged that the votes among small investors were
running "about even," and he said that Mr. Hewlett's camp
had done comparatively well with individuals. "Their
message is more succinct," Mr. Miller said.
The early indications of strength by Mr. Hewlett's side
among individual investors may not determine the outcome of
the proxy fight. Institutions, which hold 57 percent of the
shares, are more likely than individuals to actually vote.
Mr. Miller expressed confidence that Hewlett-Packard and
its supporters in favor of the merger would prevail when
the final tally is announced, which may be a month or more
after tomorrow's voting deadline.
Still, the trend among retail voters does point to the
challenge that Hewlett-Packard has faced in selling
shareholders on the deal. The rationale involves a more
detailed discussion than the case against it.
But the Hewlett-Packard side considers the merits of the
merger overwhelming. "The substance of the case is real,"
Carleton S. Fiorina, the chief executive, said in a recent
interview. "It's compelling. But it takes time to
understand."
The case for the merger, put simply, is that the computer
industry is consolidating and that corporate customers want
to deal with fewer, larger suppliers who can offer them
packages of hardware, software and services. I.B.M.
(news/quote) is the foremost example of that approach
today.
By merging with Compaq, Hewlett-Packard thinks that it can
move to challenge I.B.M. throughout the industry, and that
with leadership will come earnings growth. Supporters say
the combined company will streamline its PC operations,
becoming more efficient.
Early efforts to do that kind of explaining were waylaid by
events, and by Mr. Hewlett's surprising opposition. Even
after Wall Street gave the merger agreement a chilly
reception when it was announced on Sept. 4, Ms. Fiorina and
Michael D. Capellas, the chief executive of Compaq, were
still confident that they could fairly quickly turn things
around with in-depth presentations to investors in the
months before a shareholder vote.
The terrorist attacks on Sept. 11 interrupted such plans
for a time. Then, in early November, Mr. Hewlett, who had
voted for the deal as a board member of the company,
announced that he and his family foundation would vote
their shares against the deal. In early December, the David
and Lucile Packard Foundation, H.-P.'s largest shareholder
with 10.4 percent, said it would also oppose the Compaq
merger.
The Hewletts, the Packards and their foundations were thus
united against the deal. They hold 18 percent of the shares
- a formidable voting bloc to be overcome in a proxy fight.
And the 18 percent looms somewhat larger, considering that
only about 85 percent of shares outstanding are likely to
be voted, according to proxy experts.
The scandal surrounding Enron (news/quote), analysts say,
has also worked to Mr. Hewlett's advantage. In the Enron
case, investigators and commentators have repeatedly asked
why someone on the company's board did not stand up and ask
tough questions. At Hewlett-Packard. Mr. Hewlett, a board
member, was indeed standing up and challenging management
and the rest of the board.
Hewlett-Packard will need every share it can line up to
prevail. So even if the individual shareholder vote splits
50-50, it works to the advantage of opponents because it
means that the company must win the vote among
institutional investors by a substantial margin.
The proxies come in somewhat earlier from the individual
investors, who mail their votes, than from the
institutions. An institutional investor will typically
inform the bank that acts as the custodian of its votes,
and the bank will then call or send a fax to Automatic Data
in Roseland, N.J. While Automatic Data is the clearinghouse
for most proxies, the official count - and any challenges
from the two sides - will be handled by IVS Associates of
Newark, Del.
Institutional investors often wait until the end because if
they declare early, the side they plan to vote against may
lobby heavily to change their votes. Investors large and
small can switch their vote, and it is only the last vote
that counts, which complicates tallying and certification.
For Hewlett-Packard, the main focus has been on wooing the
institutional investors. Each of the top 100 institutional
shareholders has been met individually or in small groups
by Ms. Fiorina and her team, some more than once. Since
Sept. 4, she has logged 99,000 air miles. Last week, Ms.
Fiorina was at company headquarters in Palo Alto, Calif.,
making more than 100 phone calls to investors, urging them
to support the deal.
Some institutions have by now taken sides. In Mr. Hewlett's
camp, the roster includes the California Public Employees'
Retirement System, Brandes Investment Partners, Bank of
America (news/quote), the New York State Common Retirement
Fund and the Public Workers Retirement System of Ohio.
On Hewlett-Packard's side, the institutions include
Barclays Global Investors, Putnam Investments, Alliance
Capital Management (news/quote), the State Board of
Administration of Florida and the State Teachers Retirement
System of Ohio.
Including the family foundations, the declared vote against
the Compaq merger is roughly 22 percent. The shares that
have already been declared in favor of the deal add up to
about 9 percent.
Like Ms. Fiorina, Mr. Hewlett has pursued a grueling
regimen in search of votes. Mr. Hewlett, who twice ran the
Boston Marathon, has told his advisers that the proxy
battle is like a marathon, with the crucial final mile or
so to the finish tomorrow. Mr. Hewlett has a private jet
ready to go for a series of visits today if his advisers
consider that the best use of his time. Or, Mr. Burch says,
it could be more effective to have Mr. Hewlett work the
phones.
For her part, Ms. Fiorina will be calling institutions
today, making sure that supporters cast their votes, and
trying to win over the fence sitters.
Even if Hewlett-Packard wins, the vote will be far closer
than either company thought when the merger was announced
in September.
"If 9/11 and Enron had not happened, this deal would have
played out differently," said Mr. Capellas, who has also
been campaigning steadily to convince investors. "But we're
dealing with the world as it is."
http://www.nytimes.com/2002/03/18/technology/ebusiness/18HEWL.html?ex=1017455313&ei=1&en=540c800cb36866f5
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