Hewlett-Packard Co must wait more than two weeks for an official tally of investor votes on the proposed US$20.8 billion purchase of Compaq Computer Corp, according to IVS Associates Inc, which is counting the votes.
Shareholders of the world's second-largest computer maker met yesterday in Cupertino, California, to vote on the acquisition.
Director Walter Hewlett has been soliciting proxies against the purchase, and analysts say the vote is too close to call. With 900,000 shareholders and 1.94 billion shares outstanding, there may be no clear winner until every vote is counted.
PHOTO: NY TIMES
"We will not have the preliminary votes counted in two weeks," said Michael Barbera, a partner in Newark, Delaware-based IVS. The computer maker or Walter Hewlett may announce the results before IVS makes its official ruling on the vote, he said.
Walter Hewlett says the purchase of Houston-based Compaq, the third-largest computer maker, would dilute Hewlett-Packard's profit. Chief Executive Carly Fiorina has said the deal would increase sales of more profitable servers, storage devices and services, making the company more competitive in the corporate market.
Investors controlling more than 22 percent of Hewlett-Packard shares have said they'll vote against the purchase. Shareholders owning 8.9 percent have said they're in favor of it.
The meeting yesterday marks the deadline for Hewlett-Packard shareholders to vote on the deal. At the meeting in Cupertino, IVS was to collect the proxies and ship them to its offices to be counted. Barbera declined to say whether they will be sent by truck or airplane. "I don't want anybody following it," he said. "That's happened before."
About 25 IVS employees will count the ballots. Each ballot is filed alphabetically. That makes it easier to keep track of investors that have switched their votes by submitting new proxy cards. Only the last one counts, Barbera said.
"If John Adams sends in 10 cards, we want to get them all together to see the latest card," Barbera said. "It's done one at a time. It's very tedious and time-consuming."
After the first count, a preliminary result is announced.
Then both sides are able to review and challenge ballots. IVS inspectors will rule on the challenges, Barbera said.
Once the ballots are sorted, it's unlikely there will be any confusion about how each shareholder meant to vote, he said.
"We're not talking about chads," he said, a reference to Florida ballots that were questioned in the 2000 US presidential election. "It's very clear what the voter's intention is."
Typically, fewer than 5 percent of shareholders change their votes, he said. Some Hewlett-Packard shareholders have received 10 or more appeals for their vote in the mail. Investors can vote as many times as they want, switching sides repeatedly, but only the last vote counts.
Such detailed vote-counting, Barbera said, is done by hand with proxies counted in piles on row upon row of tables. IVS is renting extra office space and hiring additional workers for the challenge.
Late ballots
Institutional investors tend to wait until near the closing of polls to vote their shares. If a clear result is evident in the Automatic Data numbers, a winner could be declared soon. But most indications are that the Hewlett-Packard proxy fight is extremely tight, which is why it may take weeks to determine a winner.
An estimated 150,000 of Hewlett-Packard's 900,000 shareholders are so-called registered shareholders, meaning their shares are held in their own name. By contrast, most shares are held by banks or brokerage houses on behalf of the individuals and institutions who own the shares.
Because the vote on the merger is expected to be close, every shareholder decision may count far more than it does in most proxy campaigns. And the vote-counting is made more complicated by the fact that the proxy fight has been fiercely contested by two sides with deep pockets, which have spent about US$100 million on newspaper advertisements, mailings and telephone get-out-the-vote efforts.
Florida fiasco?
Each side can make appeals or ask for a recount of disputed votes. "This could be like the Bush-Gore election in Florida, if it's really close," noted Charles Elson, director of the Center for Corporate Governance at the University of Delaware.
Hewlett's side received another sliver of support on Monday, when the Teachers Retirement System of Texas announced that it would vote its 5.9 million shares against the Compaq merger.
There are 1.94 billion Hewlett-Packard shares outstanding, and proxy experts expect about 85 percent of the share votes to be cast. Compaq is holding a shareholders meeting on Wednesday afternoon in Houston. The Compaq stockholders are expected to support the deal by a large majority, quickly and quietly.
Individual investors
The proxy fight will give individual investors a rare chance to directly influence the fate of the two companies -- and perhaps an entire industry. Individual investors control one-fourth of HP stock.
Consequently, the company and Hewlett swamped HP's 900,000 shareholders with letters, advertisements, telemarketers' phone calls and multiple ballots.
"This company has a lot of investors, and every one of them is going to count," said Hewlett spokesman Todd Glass.
Most investors mailed their proxies, but at least 1,000 shareholders were expected to cast their votes in person at HP's meeting yesterday in Cupertino.
Former HP engineer Jane G. Evans, 75, already voted her shares for the deal but said she would attend the meeting to try to persuade fellow retirees to approve the acquisition too. "I think it will revitalize our company and drive it into the future," she said.
Rarely do proxy fights turn into such cliffhangers, said Charles Elson, director of the Center for Corporate Governance at the University of Delaware.
"Usually you get a pretty good sense of how it's going to go one or two days out. The fact that neither side is claiming victory shows that this ranks up there as one of the closer ones," Elson said. "It's going to go down to the wire."
The most recent proxy fight this close, he said, was last year's banking merger of Wachovia Corp and First Union Corp, which was approved by 60 percent of Wachovia shares after rival SunTrust Banks Inc made an unsolicited takeover bid for Wachovia.
Last-minute decisions
Elizabeth Mozley and her partners at the Florida State Board of Administration waited until the last minute to decide whether to support the merger.
"We went through everything," Mozley said. "It's a pretty long process for us. We read all the material and spoke to both sides."
The fourth-biggest state pension fund in the US, with 4.73 million Hewlett-Packard shares, decided Friday to vote yes, to "go for the long-term growth," she said.
The proxy fight over the acquisition has become a nail-biter. In the lead up to yesterday's vote, Fiorina and Hewlett have been stumping for support and trying to get the final word in with fund officials such as Mozley.
"This is the most divisive takeover battle I've seen," said Jack Ehnes, CEO of the California State Teachers' Retirement System, which has a 0.2 percent stake. The pension fund got phone calls from Walter Hewlett and Fiorina in the past week, before Ehnes announced his opposition Thursday.
The battle became more personal as the vote approached.
Hewlett-Packard derided Walter Hewlett as a "musician and academic" who doesn't have enough business experience to know what's best for the company or investors. Other directors, including Boeing Co CEO Phil Condit, have sent letters to shareholders urging their support.
Walter Hewlett has called the Compaq deal a "US$25 billion mistake" in some of the daily full-page newspaper ads he has bought, often just pages away from Hewlett-Packard's own ads touting the potential strengths of the combined company.
Last month, Walter Hewlett released board meeting minutes showing that the company considered paying Fiorina and Compaq CEO Michael Capellas more than US$115 million if the deal is completed, an effort to support his contention that executives are pushing the acquisition for personal gain. Hewlett-Packard said compensation hasn't been decided.
In the past two weeks, Fiorina spoke on a conference call with the Council of Institutional Investors and gave speeches at a Morgan Stanley Dean Witter conference in Laguna Nigel, California, and in Palm Springs at a dinner for women in business. She has phoned small investors and applauded Hewlett-Packard workers.
"We will always fight for what we know is right for this company," she wrote in an e-mail to employees Thursday.
As institutions such as Putnam Investments and Banc One Investment Advisors and proxy adviser Institutional Shareholder Services line up behind her, they say she has convinced them the Palo Alto, California-based company needs the purchase to stay competitive.
`No' vote has risks
Some shareholders say there are risks in voting no, because if Walter Hewlett wins, several company officials, including Fiorina, may resign.
"You're looking at at least six to 12 months of management turmoil, possibly turmoil on the board," said Banc One money manager Steve Salopek.
Walter Hewlett says he expects only Fiorina to leave if the purchase is rejected. He has won over investors including Bank of America Corp, Wells Fargo & Co and New York State's public-employee pension fund.
"The merger would be infinitely more disruptive than a simple change of a CEO," Hewlett said Tuesday on a conference call.
The son of co-founder William Hewlett spent the final days of his campaign in New York and Boston, meeting shareholders. He hosted a call March 11 with the Council of Institutional Investors. He has met with more than 100 shareowners since November.
His team set up "a command center" this weekend in a hotel near the meeting site.
Both sides know that every vote counts. Parnassus Investments President Jerry Dodson, with just 170,000 Hewlett-Packard shares and US$600 million under management, got an unexpected 45-minute phone call from Fiorina this month.
Though he was leaning against the transaction, Dodson said Fiorina made a strong case for her plan to integrate the two companies.
"She was very persuasive," Dodson said. "She pointed out certain elements I had not considered before." Still, late Friday, he decided to vote no.
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