HP vote puts $21 billion deal to buy out Compaq in jeopardy

  • Tuesday, November 6, 2001 9:00pm
  • Business

Associated Press

PALO ALTO, Calif. — The family and foundation of Hewlett-Packard Co. co-founder William Hewlett said Tuesday they will vote their 5 percent stake against the proposed takeover of Compaq Computer Corp., revealing divisions that could threaten the $21 billion deal.

Walter B. Hewlett, Hewlett’s son and a member of the HP board, said the company can create better value for shareholders without the addition of Compaq. Hewlett said the deal would give the new HP too much exposure to the struggling personal computer industry and dilute its profitable printer business.

"Given the lack of stockholder benefits, I believe the extensive integration risks associated with this transaction are not worth taking," Hewlett said in a statement on behalf of him, his sisters Eleanor Hewlett Gimon and Mary Hewlett Jaffe, and the family’s charitable foundation.

It was not immediately clear how many other HP board members shared their position, or whether the Packard family — which owns 10 percent of HP’s stock — had similar views. Hewlett voted for the acquisition when the board originally gave chief executive Carly Fiorina the green light to pursue the deal.

For many of the reasons Hewlett cited, the deal has been widely unpopular on Wall Street ever since it was announced on Labor Day. Shares of HP jumped 17 percent, or $2.92, to close at $19.81 Tuesday on the New York Stock Exchange. Compaq shares fell 5.5 percent, or 49 cents, to close at $8.50.

A date for shareholder votes on the deal has not been announced. HP management said in a statement it would soon file detailed documents about the proposed acquisition with the Securities and Exchange Commission that "will serve as the basis for thoughtful shareowner evaluation."

"While we regret very much the Hewlett family’s decision, we are not surprised," the statement said. "The HP board of directors and HP and Compaq remain fully committed to the merger and expect shareholder approval."

A spokeswoman for Fiorina and a representative for Compaq did not immediately return calls seeking further comment.

William Hewlett and David Packard founded HP in a Palo Alto garage in 1938 with $538 of their own money and built it into one of the world’s premier technology companies. Hewlett died in January; Packard died in 1996.

Fiorina became the first outsider to lead the company when she was hired away from Lucent Technologies in 1999. Although she has come under intense criticism this year as HP’s profits and sales have fallen, the board had at least publicly appeared unified behind her strategy until Tuesday.

"I think symbolically, it’s a blow to the deal and to the confidence of industry observers and other shareholders, many of whom take their cue from that pretty big stake," said Eric Rocco, a Gartner Dataquest vice president who has studied the proposed acquisition.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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