This article from NYTimes.com has been sent to you by [log in to unmask] /-------------------- advertisement -----------------------\ Presenting the reloadable Starbucks Card. The Starbucks Card is reloadable from $5 - $500. Fill it up. Use it. Use it. Then, fill it up again. https://www.starbucks.com/shop/reload.asp?ci=672 \----------------------------------------------------------/ 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 HOW TO ADVERTISE --------------------------------- For information on advertising in e-mail newsletters or other creative advertising opportunities with The New York Times on the Web, please contact [log in to unmask] or visit our online media kit at http://www.nytimes.com/adinfo For general information about NYTimes.com, write to [log in to unmask] Copyright 2002 The New York Times Company * To join/leave the list, search archives, change list settings, * * etc., please visit http://raven.utc.edu/archives/hp3000-l.html *