An influential fund adviser on Tuesday recommended shareholders support Hewlett-Packard Co. (HWP)'s bitterly contested merger with Compaq Computer Corp. (CPQ), giving a much-needed shot in the arm to the proposed $22 billion union.
An estimated 10 percent of HP shares — a block that could determine whether or not the largest-ever computer merger succeeds — will be voted in accordance with the opinion of Institutional Shareholder Services (ISS), which plans to disclose its position on the deal by Tuesday.
With about 20 percent of HP's shares already lined up against the deal — including those of the Packard Foundation and Walter Hewlett, son of the company's co-founder — ISS's support was viewed as critical to the merger.
Walter Hewlett has led a vigorous campaign to kill the merger, claiming it would saddle HP with a low-margin personal computer maker. HP Chief Executive Carly Fiorina counters that the deal, the largest computer merger in history, is crucial to HP's survival and would create a technology powerhouse to rival IBM Corp.
ISS advises some 700 funds how to vote in proxy battles, and many of its clients are obligated because of the structure of their funds or potential conflicts of interest to follow ISS advice. HP shareholders vote on the deal in a March 19 meeting, and Compaq will consider the merger a day later.
Prior to the announcement, HP shares ended up 4 cents at $20.59 and Compaq shares were down 7 cents at $10.58, both on the New York Stock Exchange.
The battle over the merger has grown nasty in recent days, pitting HP Chief Executive Carly Fiorina, who says the merger would create a technology powerhouse to rival IBM Corp. , against dissident director Walter Hewlett, who says the deal would saddle the company his father co-founded with a low-margin personal computer maker.
Hewlett wants Fiorina fired if the deal is scrapped. Fiorina says Hewlett has been deceptive by leaking details of discussed executive pay deals as well as by floating talk of bringing back former HP CEO Lew Pratt to steer the company in the interim.
Opponents of the deal outside the company have been much more vocal than supporters, arguing that Compaq's PC business, No. 2 after losing the lead to Dell Computer Corp last year, was commodity-oriented and would dilute the value of HP's higher-margin printing franchise.
Many passionate retail investors posting on Internet message boards backed that point of view, but HP management has beaten Wall Street financial expectations for the past two quarters, after a year of profit disappointments.
Reuters contributed to this report.