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Wed, Mar 20, 2002 - Page 19 News List

H-P workers, Texas teachers oppose merging two companies

Dissident director Walter Hewlett claimed a victory on Monday after company employees by a margin of two to one said they were against the proposed deal


The Teacher Retirement System of Texas and Wachovia Corp said they'll vote against Hewlett-Packard Co's planned US$20.8 billion acquisition of Compaq Computer Corp, joining the public opposition one day before a shareholder vote.

Dissident director Walter Hewlett said in a statement that Hewlett-Packard employees voted against the deal by a two-to-one margin, and eight workers at spinoff Agilent Technologies Inc voted no for every yes vote.

"We've decided to vote against the merger," said John Peavy, chief investment officer at Texas Teachers, the seventh-largest US pension fund. Peavy couldn't immediately provide further details.

Texas Teachers owned about 5.9 million shares of Hewlett-Packard, or a 0.3 percent stake, as of Dec. 31, according to filings with the Securities and Exchange Commission.

The opposition by the pension fund, based in Compaq's home state of Texas, adds to the 22 percent publicly opposing the takeover one day before Hewlett-Packard shareholders vote in what many investors called the closest proxy contest they've seen.

Wachovia's Evergreen Investments owns 0.1 percent of the stock and said in a PR Newswire release it would vote no because the transaction will hurt earnings.

"My perception is that if Hewlett-Packard gets shareholder support, it will be by the skin of their teeth," said Jonathan Couchman, founder of Couchman Capital LLC, a New York firm that specializes in trading stocks of companies involved in takeovers.

Compaq shares climbed US$0.03 to US$10.36 on Monday, while Hewlett-Packard rose US$0.20 to US$19.25.

Compaq is now trading at about US$2 less than the proposed takeover value of US$12.18, based on the offer of 0.6325 Hewlett-Packard share for each Compaq share.

The 15 percent discount to the takeover offer shows doubts that the deal will be approved, investors and traders said.

"The market is assigning a 50/50 probability to a favorable outcome," said Couchman, who owns Compaq shares and is betting the takeover will be approved by a margin of 3 percent or less.

Several institutional investors last week came out in favor of the combination, bringing public support to 8.9 percent. The majority of shareholders haven't said publicly how they will vote.

Investors said the outcome will hinge on the largest investors such as Capital Research & Management Co, a Los Angeles-based firm that owns about 67 million Hewlett-Packard shares, or 3.4 percent, according to SEC filings. Capital Research spokeswoman Jennifer Grigas declined to comment.

"My sense is that the large shareholders will support the transaction, just not say so publicly," Couchman said. "They may, though, by being silent, be signaling their lack of conviction in both the deal and the outcome of the vote."

Institutions that have said they will vote for the purchase include Alliance Capital Management, Banc One Investment Advisors, Barclays Global Investors, Collins & Co, General Motors Investment Management, Intel Corp, L. Roy Papp Associates and Putnam Investment Management. The backers also include state pension funds representing public employees in Florida and Wisconsin, and educators in Pennsylvania and Ohio.

Hewlett-Packard Chief Executive Carly Fiorina says Hewlett-Packard needs to buy Compaq to increase sales of server computers and services to corporations. She says combining the two will save them US$2.5 billion in costs.

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