March 15, 2002 5:25 PM PST

N.Y. pension fund against HP-Compaq

Two large New York pension funds announced Friday they will vote against the hotly contested Hewlett-Packard and Compaq Computer mega-merger.

See special coverage: A Fight to the Finish The move comes just days away from the shareholder vote for the largest tech merger in history and one that will bring dramatic consolidation to the PC industry.

The New York State Teachers Retirement System said it plans to vote its seven million shares, or 0.37 percent stake, against the merger, said a representative for the organization, declining to cite the reasons for the decision. The teachers pension fund group holds about seven million shares in Compaq as well.

Earlier in the day, the New York State Pension Fund said it would vote against the merger, the state comptroller's office confirmed. The fund owns about six million shares each of both HP and Compaq stock. The news comes a day after both HP and opponents of the proposed merger declared they were gaining momentum after disclosures by institutional shareholders.

Late Friday, Walter Hewlett's camp said it had picked up "no" votes from the State of Michigan Retirement Systems, with 1.3 million shares, and Public Employees' Retirement Association of Colorado, with 1.2 million shares.

Meanwhile, an HP representative cited victories with state pension funds in Florida and Wisconsin as well as a money-management arm of General Motors. The representative also touted a win from Federated Investors.

Both companies are preparing for a shareholder vote Tuesday that most analysts say is anybody's game. The proposed mega-merger, which is valued at about $21 billion, is being opposed by HP board member Walter Hewlett, as well as Hewlett and Packard family members and institutions representing 18 percent of HP shares. Other institutions representing about 3 percent of HP shares have come out against the deal, and those representing about 8 percent of shares have come out in favor of it.

With the clock ticking, both sides exchanged their latest ads in Friday's Wall Street Journal.

Hewlett, leader of the trust that launched the proxy fight, urged shareholders to vote "to prevent a $25 billion mistake." Hewlett's ad instructed shareholders how to vote against the merger and emphasized that it is the green proxy card that counts. At the bottom, Hewlett noted, "It is important for all employees of HP to know that their vote is confidential for all shares owned in the HP 401(k) plan."

David W. Packard also bought space in the Journal, running an ad titled "A Day at the Old HP" that was two pages away from Hewlett's. Packard's ad ran the full text of an informal speech by his father, Dave Packard, given to HP managers in 1960.

Taking sides
This is a current list of the large investors that have announced their allegiance in the proposed merger of Hewlett-Packard and Compaq Computer.
Name % of holdings
Yes votes
Barclays Global Investors 3.10%
Putnam 2.51%
Alliance Capital 2.34%
Banc One Investment Advisors 0.26%
State Teachers Retirement System of Ohio 0.18%
Others, with less than 0.10 percent 0.04%
Total 8.43%
No votes
Hewlett and Packard Families Trusts and foundations 18%
Brandes Investment Partners 1.30%
CalPERS 0.40%
New York State Teachers Retirement System 0.37%
Wells Fargo 0.36%
Victory Capital Management 0.36%
The Torray Fund 0.33%
New York State Pension 0.32%
Banc of America Capital Management 0.32%
Public Employees Retirement System of Ohio 0.21%
Calif. State Teachers Retirement System 0.17%
Teacher Retirement Systems of Texas 0.31%
Others, with less than 0.10 percent 0.31%
Total 22.76%
Source: Investors and SEC filings
In the introduction to the speech, Packard said: "If you are pondering how to vote on the proposed merger, you might ask yourself whether Bill (Hewlett) and Dave (Packard) could have devised a premeditated business plan that treated HP employees as expendable."

A few pages later, HP ran a previously published ad of an open letter to HP shareholders from director Richard A. Hackborn.

The jousting shows just how important every vote has become. Individual investors and institutions owning less than 1 percent of HP could prove to be pivotal in the vote.

Thursday, HP lined up more support for the merger as chip giant Intel and asset manager Banc One Investment Advisors said they would vote in favor of the deal. The State Teachers Retirement System of Ohio, as reported by CNET News.com, said it would vote its 3.5 million HP shares and 4.3 million Compaq shares in favor of the deal.

Although HP issued a statement declaring that support for the merger was gaining momentum, it wasn't a complete victory. Earlier Thursday, the California State Teachers' Retirement System, one of the largest U.S. pension funds, said it was opposed to the deal. The Ohio Public Employees Retirement System also said it was against the deal. Not surprisingly, Hewlett issued a news release noting that opposition was gaining momentum.

Among HP's supporters, Intel's move is almost entirely symbolic. An Intel representative said the company would vote the 58,836 shares it directly controls in favor of the deal. Another 525,440 shares are owned as part of a profit-sharing program for Intel employees, but the company does not decide how those shares will be voted.

Banc One owned 5.1 million HP shares as of Dec. 31, according to an HP news release.

HP and Compaq are two of Intel's largest customers, and the combined company would clearly be even more important. HP is seen as the more independent of the two companies and less likely to directly follow Intel's product plans.

On Wednesday, HP Labs Director Dick Lampman said HP has no intention of handing over its server architecture to Intel in a post-merger world; however, the combined company said it would work with Intel on various projects.

Also on Friday, Parnassus Investment announced it would vote its small stake of HP shares against the deal. Parnassus, despite holding only 170,000 shares, had managed to grab the attention of Carly Fiorina, HP chief executive, and Walter Hewlett, the dissident HP director who is leading the charge against the merger.

The vocal portfolio manager Jerry Dodson had been leaning against the deal fairly heavily, when he received a call from Fiorina late last week. With her compelling arguments, Dodson this week said he was on the fence with the decision. But ultimately, Dodson voted against the deal, which he described as being dilutive to HP's highly profitable printing and imaging business, and noted the difficultly in integrating two large companies.

News.com's Margaret Kane and Dawn Kawamoto contributed to this report.

 

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