HP Shareholders Head to Vote on Compaq Merger

The shareholders meeting, which will decide the future of the company that put Silicon Valley on the map, convenes at 8 a.m. PST in a symphony hall, the Flint Center, in Cupertino, Calif., near HP headquarters, although the official result may be weeks away.

Hours before the meeting opened, merger opponents led by Walter Hewlett, the dissident board member, had gained slightly more public support, with about 24 percent of shareholders against the merger- including many HP employees' pension plan shares--compared with about 20 percent seen for management.

That includes about 10 percent of shareholders from index funds bound to follow the advice of Institutional Shareholder Services, an advisory firm in favor of the deal, now worth nearly $21 billion in HP stock.

Walter Hewlett, who says Fiorina should leave, wants to focus the company on its printer operation and maintains that the merger instead would bloat its low-profit PC operation and distract employees, giving rivals an edge.

Fiorina, brought in three years ago to shake up the sleepy company known as much for bureaucracy as technology, says the deal would raise HP and pit it against IBM for the title of No. 1 computer maker, creating a new services and high-end computer powerhouse.

Slowing technology sector growth has set the stage for an industry consolidation where bigger companies with relatively lower fixed costs would pull ahead, she says.

However, those reasoned arguments faded quickly in the contest as both sides got personal.

HP called Hewlett, who had initially voted with the HP board for the deal, a dilettante academic and musician who "flip-flopped" in his decisions, while Hewlett said HP needed a CEO who was not learning on the job.

HP's stock price, meanwhile, has fallen 17 percent since management announced the deal on Sept. 3, while Compaq has dropped 27 percent, an indication investors doubt the deal will be pulled off, since Compaq shares should have risen toward the price implied by the merger's terms if it seemed likely.

IBM shares have risen 12 percent in the same period.

But shareholders' decision will not be official Tuesday, since the firm counting ballots must plow through a paper trail left by some 900,000 stock holders, many of whom could have voted more than once, according to HP's voting rules.

Instead, Fiorina and Hewlett are expected to hold news conferences, one after the other upon the close of the meeting, at which they will divulge their calculations based on rough tallies by proxy solicitors and talks with major investors.

Compaq CFO Jeff Clarke, whose company votes on the deal Wednesday, said in a memo to employees that was filed with regulators that HP might claim victory or say the vote was too close to call at the end of Tuesday.

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