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Hewlett and Compaq Shares Diverge Ahead of Key Report

March 5, 2002

By REUTERS




Filed at 11:08 a.m. ET

NEW YORK (Reuters) - Hewlett-Packard Co. (news/quote)
(HWP.N) shares rose on Tuesday even as merger target Compaq
Computer Corp. (news/quote) (CPQ.N) shares fell, indicating
investors are less confident the $22 billion merger will go
through ahead of advice from an influential proxy
monitoring group on the vote.

Institutional Shareholder Services, based in Bethesda,
Maryland, advises about 700 funds how to vote in proxy
battles and on Tuesday after the market closes will weigh
in as to whether or not it supports the merger.

HP has said that about 23 percent of its institutional
shareholders subscribe to ISS and may or may not follow its
advice, while other investors are also expected to take
their cue from ISS.

Analysts say it could be enough to scuttle the merger if
ISS advises against the deal, or to push it through if ISS
approves of the pact.

Sanford C. Bernstein analyst Toni Sacconaghi said in a
recent research note that the current likelihood of the
deal going through is 35 percent.

``We believe that these odds drop to about 10 percent if
ISS votes against the deal and improve to 50 percent or
more if ISS votes for the deal,'' Sacconaghi wrote.

Hewlett-Packard announced on Sept. 3 plans to buy Compaq,
but in the past six months the deal has hit many rough
patches as investors questioned its merits and Walter
Hewlett, son of a founder of Hewlett-Packard, waged a proxy
battle against the plan.

Ahead of the ISS announcement, Compaq shares fell 3.19
percent to $10.31 in active trade, while Hewlett-Packard
shares rose 1.3 percent to $20.81, both on the New York
Stock Exchange.

That indicates that Compaq is trading at a 26 percent
discount to the implied merger price, a much wider spread
than even a month ago, when the difference had narrowed to
about 13 percent. Deals viewed as likely to close typically
trade in the 8 percent to 10 percent range.

That 26 percent spread is much narrower than the more than
50 percent discount Compaq traded at in November after
members of the Hewlett and Packard families said they would
vote their 18 percent stake against the merger.

Currently, investors, including those family members, who
hold about 20 percent of the company's shares have said
they will vote against the plan.

http://www.nytimes.com/reuters/business/business-tech-compaq-hewlett-stocks.html?ex=1016352647&ei=1&en=9ccf96f8e89672f1



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