California Teachers' Pension Fund Opposes HP Merger

The $100 billion CalSTRS fund, which holds 3.3 million HP shares and 5.3 million Compaq shares, says it is voting against the hotly contested deal because it sees potential integration problems between the two computer companies and it is concerned the merger would dilute HP's profitable printer and imaging business.

The arguments for and against the merger "both were very persuasive," the pension fund said in a statement. But "on a portfolio-wide basis, as a long-term investor, we do not believe the transaction is in the best interest of the CalSTRS members and beneficiaries."

CalSTRS joins the California Public Employees Retirement System, the largest U.S. pension fund, and some other institutional investors in coming out against the $22 billion deal. CalSTRS serves about 687,000 members.

HP and Compaq shareholders vote next week on the merger plan. Analysts say the results are a toss-up so far.

On Wednesday, Putnam Investments, one of the largest shareholders in the two companies, threw its support behind the deal. Boston-based Putnam, the No. 4 U.S. fund group, held about 46.2 million HP shares in its mutual funds and institutional accounts, and 68.9 million Compaq shares, as of Dec. 31.

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