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Compaq approves merger

PROXY VOTE Although company shareholders approved a proposed merger with Hewlett-Packard by a nine-to-one ratio, it was narrower than analysts had expected

BLOOMBERG , HOUSTON, TEXAS

Compaq Chairman and CEO Michael Capellas announces that company shareholders overwhelmingly have approved the Hewlett-Packard merger. Shareholders approved the deal by a 9-to-1 margin. Compaq is the weaker company in the deal between the two technology titans.

PHOTO: AFP

Compaq Computer Corp said shareholders approved by a nine-to-one ratio a plan to sell the world's third-largest computer maker to larger rival Hewlett-Packard Co for US$19.7 billion in stock.

"It's the only combination in the industry that makes sense," Chief Executive Michael Capellas said at an investor meeting in Houston. "It does create a company that can redefine the industry."

Hewlett-Packard Chief Executive Carly Fiorina yesterday said an early count showed a slim majority of her company's investors voted in favor of the purchase.

Analysts expected Compaq holders to approve it by a much wider margin. The company has struggled on its own as personal-computer sales growth slowed and prices fell.

Investors say the combination will build a bigger player in the competitive market for server computers and corporate services.

"The marriage with Hewlett-Packard will enhance Compaq's opportunities more than doing it on its own," said James Hall, who lives in Crockett, Texas, and voted his family's 3,100 Compaq shares in favor.

Compaq shares fell US$0.32 to US$10.82 on Wednesday. They're trading at about 6 percent below the value of Hewlett-Packard's per-share offer. That's the narrowest difference since the purchase was announced Sept. 3. In the year before the deal was disclosed, Compaq stock had tumbled 64 percent.

Hewlett-Packard shares fell US$0.60 to US$18.20.

Walter Hewlett, the Hewlett-Packard director who started a proxy fight against the purchase, says the tally of Hewlett-Packard shareholder votes is too close to call. He argues that buying Compaq would make the company his father co-founded too dependent on revenue from low-margin PCs, and would dilute the value of the printer business, Hewlett-Packard's most profitable unit.

Hewlett-Packard has about 1.94 billion shares outstanding, and the margin of difference in the vote is about 10 million shares, or half a percentage point, according to a person close to Walter Hewlett. The difference may be as wide as 50 million shares, or 2.6 percentage points, a person familiar with Hewlett-Packard said yesterday.

IVS Associates Inc is counting the votes by hand and will have official results in several weeks.

Capellas said he's confident Hewlett-Packard won its vote.

"They would not have announced otherwise," he told the 200 shareholders who attended today's meeting at the Wyndham Hotel.

Virginia Forsman and her husband, Earl, came from Conroe, outside of Houston. They said the combination would help Compaq compete because the company will cut costs through 15,000 planned job cuts.

"Together they'll be more explosive," she said.

Most opponents expressed concern about the firings and the fate of Compaq's Houston operations. Benjamin Brachstein said he worried that Compaq might leave town, hurting the local economy.

Others agreed.

"There will be blood flowing down highway 249, where Compaq is located," said Lane Evans, who voted his 100 Compaq shares against the acquisition.

Capellas tried to reassure them, saying the city would still be a key locale for the combined company and that it had a cheaper cost of living than Silicon Valley, where Hewlett-Packard is based.

"This is a great place to conduct business," he said.

Chief Financial Officer Jeff Clarke said in an interview that he's moving to California and looking for a house near Hewlett-Packard's Palo Alto headquarters.

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