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This is the NY Time's take on the ISS decision.  The NYT now rates merger approval as 50-50.

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Research Firm Recommends Yes Vote on Hewlett-Compaq Merger

March 5, 2002

By THE ASSOCIATED PRESS




Filed at 4:59 p.m. ET



SAN JOSE, Calif. (AP) -- A highly influential proxy
research firm recommended Tuesday that Hewlett-Packard Co.
(news/quote) investors approve the proposed $22 billion
acquisition of Compaq Computer Corp. (news/quote), giving
new life to HP's efforts to pull off the hotly contested
deal.

After reviewing thousands of documents and listening to
personal appeals from HP executives and merger opponent
Walter Hewlett, Institutional Shareholder Services of
Rockville, Md., said the deal could be an excellent
long-term strategic move for the companies despite sizable
risks.

The ISS decision was crucial because more than 20 percent
of HP shares, including those held by the Hewlett and
Packard families and their foundations, are already lined
up against the deal, and only about 5 percent of HP shares
appear to be in the company's camp.

A negative report widely would have been seen as a fatal
blow for the deal. Analysts said the positive report would
leave HP with a 50-50 chance of winning the fight.

Some analysts and HP's chief financial officer have
estimated that as many as 40 percent of HP shares are held
by investors who either will follow ISS's advice or will be
in some way influenced by the report.

Other analysts put the total much lower, because this deal
is so vigorously contested that most money managers will
weigh a variety of factors in deciding how to vote.

But at a minimum, ISS could control about 10 percent of HP
shares because some investors have ISS vote for them.
Barclays Global Investors -- which owns 3.1 percent of HP
stock and is the company's fourth-largest investor, has put
its votes in ISS's hands because Barclays chief Patricia
Dunn sits on HP's board.

HP shares rose 5 cents to close at $20.60 Tuesday on the
New York Stock Exchange before the ISS report and fell a
penny in after-hours trading. Compaq shares dropped 7 cents
to $10.58 in regular trading and were unchanged in after
hours trading.

As HP and Walter Hewlett have been locked for months in a
bruising, political-style campaign for shareholder support,
the ISS vote loomed as a something of a primary election.
The merger campaign is expected to only intensify as the
March 19 shareholder vote gets closer.

HP and Compaq believe that merging will make them a
dominant force in several growing technology markets,
especially corporate computing and high-tech services,
while improving the economics of their struggling personal
computer divisions and generating $2.5 billion in cost
savings.

Hewlett and other merger opponents worry that absorbing
Compaq into HP would be a difficult and distracting
process, and that the acquisition would dramatically
increase HP's exposure to the bad PC business at the
expense of the profitable printing and digital imaging
division.

The ISS report, authored by Ram Kumar, its assistant
director of U.S. research, closely examined both sides'
arguments and the corporate governance process involved in
planning the deal.

Although ISS said ``we share Mr. Hewlett's belief that
integration is one of the most daunting problems facing a
combined HP-Compaq,'' it went on to note that the companies
appear up to the task.

ISS also supported the HP board's contention that it had
considered a slew of other strategic options before
deciding that buying Compaq was the best course.

Hewlett has challenged that notion and offered a simpler,
``focus and execute'' strategy centered more on the
printing business.

``We believe that the Compaq merger provides a better means
of maximizing long-term value by exploiting all of HP's
assets rather than just a single `crown jewel,''' the
report said.

------

On the Net:

Pro-merger site: http://www.votethehpway.com

Anti-merger
site: http://www.votenohpcompaq.com

http://www.nytimes.com/aponline/technology/AP-HP-Compaq-Merger.html?ex=1016376720&ei=1&en=9076187f653393e2



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