CalPERS Opposes H-P, Compaq Combination

March 11, 2002 ( - The California Public Employees' Retirement System (CalPERS) announced late Friday that it would vote its 7.6 million shares AGAINST Hewlett-Packard's proposed $22 billion acquisition of Compaq Computer.

Of course, even though CalPERS is a $151 billion pension fund, that’s just 0.4% of the outstanding HP shares. 

Two ‘For’

In announcing its opposition, CalPERS cited the long-term risks, high cost and ‘strategic uncertainty’ of the proposed combination.  All in all, CalPERS said that ‘owning shares of the combined entity versus continuing as two separate companies does not present the best alternative for value creation to the CalPERS portfolio.’ 

Instead, CalPERS said its investment would be best served if HP focused on being a ‘best-of-breed company in the printing and imaging business while strengthening its storage, service and high-end consulting businesses.’

‘It is important to state this decision is not a referendum on HP’s management team or its CEO, Carly Fiorina,’ CalPERS said in a statement. ‘Rather, it is solely based on the merits of this transaction as it relates to CalPERS’ portfolio.’

Compaq Card

CalPERS also owns 0.39% of the outstanding shares of Compaq, according to, which tracks corporate ownership.  Taking a somewhat different tack, CalPERS said it will oppose the move with its 6.6 million Compaq shares.  CalPERS said that while the fund ‘believes the proposed merger is attractive to Compaq shareholders on a stand-alone basis,’ those same integration risks and strategic uncertainty caused them to believe that the firms were worth more as separate entities than as a combination.

Led by the Hewlett and Packard families and their foundations, more than 20% of HP shares are expected to vote against the Compaq acquisition on March 19.

Advisory Opinion

Last week, influential proxy advisor Institutional Shareholder Services threw its support behind the proposed $22 billion deal – and analysts expect the recommendation to influence the final decision by a significant number of institutional investors.  Analysts expect 10% or more of HP shareholders, including index funds and Barclays Global Investors, whose CEO sits on the HP board, to follow the ISS recommendation.  CalPERS is an ISS client.

HP shares gained nearly 3% on Friday, while Compaq stock advanced nearly 5.8%.

Hewlett-Packard shareholders are due to vote on the proposed merger on March 19, with Compaq shareholders voting one day later.