HP-Compaq Merger Gets Boost With ISS Endorsement

In getting the nod for the deal from ISS, HP and its chairman and CEO, Carly Fiorina, scored a major victory in the fight to win shareholder approval of the merger, according to industry analysts. ISS has key influence on institutional investors, which stand as the swing vote in the hotly contested merger, analysts said.

"We recommend that HP shareholders vote for the combination," said Patrick McGurn, ISS vice president. "Management's plan is achievable. We believe that the Compaq merger has an excellent chance of maximizing shareholder value."

The HP shareholder vote on the merger deal is scheduled for March 19.

HP has said that about 23 percent of its institutional shareholders subscribe to ISS and may or may not follow its advice.

Barclays Bank, for example, owns about 3.1 percent of HP's outstanding shares and empowered ISS to vote its shares based on the firm's assessment of the deal. HP board member Patricia Dunn is co-chairman and global CEO of Barclays Global Investors. The decision to allow ISS to vote Barclays' shares was done to avoid conflicts of interest, the company said.

With both the Hewlett and Packard family foundations opposing the merger agreement--coupled with public announcements against the deal by some institutional shareholders--about 20 percent of HP's outstanding shares are already lined up against the merger.

If ISS had advised against the deal, it could have been enough to scuttle the merger, analysts said.