The Hewlett family and a related foundation, owners of about 5 percent of Hewlett-Packard Co's shares, will vote against the computer maker's US$21.4 billion acquisition of Compaq Computer Corp. H-P shares soared 17 percent.
"This is a bad transaction," said board member Walter B. Hewlett, a son of co-founder William Hewlett, saying it would distract management and increase exposure to the slow-growth personal-computer business. "The sooner it ends, the better."
The family's opposition may signal an erosion of support for Chief Executive Carly Fiorina, a former Lucent Technologies Inc executive who came to the second-largest computer maker in 1999, investors said. She has championed the acquisition, saying she'll see it through to a vote even though the deal, originally worth US$25 billion, has tumbled in value. Compaq shares fell 5.5 percent.
"This is quite a blow to the current management of H-P," said Bruce Raabe, chief investment officer of Collins & Co, which owns 150,000 Hewlett-Packard shares. "It signals some doubt in Carly's management and judgment. This will change how the vote shakes out."
Hewlett-Packard shares rose US$2.92 to US$19.81 after touching US$20.04, their highest price since Sept. 4, the day after the acquisition was announced. The stock has fallen 15 percent since the deal was disclosed. Compaq fell US$0.49 to US$8.50. That's 47 percent less than the value of Hewlett-Packard's per-share offer.
Walter Hewlett, his sisters Eleanor Hewlett Gimon and Mary Hewlett Jaffe, and the William R. Hewlett Revocable Trust together own more than 100 million shares of the company. Acquiring Compaq would boost Hewlett-Packard's position in the PC market, where annual sales are forecast to fall for the first time in more than 15 years. The Palo Alto, California, company is worth more on its own, Walter Hewlett said.
"Compaq is not the right partner for Hewlett-Packard," he said. "The extensive integration associated with this transaction is not worth taking. The merger would distract Hewlett-Packard management and employees."
A foundation started by David Packard, who founded the company with William Hewlett in a Palo Alto one-car garage in 1939, is the largest shareholder, with about 10 percent of shares.
William Hewlett died this year, and Packard died in 1996.
The Packard foundation hasn't made a decision on the Compaq acquisition and will hire a consultant to review the purchase, Chief Financial Officer George Vera said. He doesn't expect a vote until January and said the group is "in the middle of the beginning" of deciding.
Hewlett-Packard issued a statement saying that the company, its board and Compaq "remain fully committed" to the acquisition and expect shareholder approval.
"While we regret very much the Hewlett family's decision, we are not surprised," the statement said. Company spokeswoman Suzette Stephens declined to elaborate.
Walter Hewlett said he called Fiorina yesterday morning to let her know of his family's plan. He declined to elaborate on the conversation or discuss whether he supported the acquisition before it was announced.
Walter Hewlett said he plans to call other directors today to talk about the purchase. He wouldn't say whether the board might cancel the deal before it goes to a shareholder vote.
"It really opens the door for the boards to re-review the transaction and increases the possibility that the deal won't get done," said David Katz, chief investment officer of Matrix Asset Advisors, who opposes the deal and last month urged the companies to drop the acquisition. "If it doesn't go through, I think there is a new CEO."
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