Institutional Investors Take Sides in H-P/Compaq Package

March 18, 2002 ( - The pace of support - and opposition - to the upcoming vote on Hewlett-Packard's proposed $21 billion acquisition of Compaq Computer picked up on Friday.

And, like an evenly-matched NCAA tournament contest, both sides traded points – but no clear winner emerged as Tuesday’s vote neared.

And, as institutional investors continued to line up on both sides, Walter Hewlett, leader of the trust that launched the proxy fight against the deal (see HP Takes Merger Matters To The Troops), not only urged shareholders to reject the deal – he also told H-P workers that ‘It is important for all employees of HP to know that their vote is confidential for all shares owned in the HP 401(k) plan.’

According to CBS MarketWatch, the latest wave of large shareholders to take sides brings the total confirmed shares in favor of the combination to about 9%, compared with roughly 25% opposing the deal.  However, roughly 18% of the latter comes from the Hewlett and Packard Families Trusts and foundations, which have opposed the deal for some time now.  Further, the vast majority of H-P shareholders have not publicly declared their voting intentions.

Still, both sides continue to claim a gathering momentum for their position – while expressing confidence in the eventual outcome.  And, given the split votes that continue to emerge, it would appear that both sides could credibly lay claim to their beliefs.

Friday’s Filings

On Friday, the following weighed in supporting the acquisition:

  • The Florida State Board of Administration – roughly 4.7 million H-P shares (a 0.24% stake)
  • The Pennsylvania Public School Employees’ Retirement System – 2.1 million shares (a 0.1% stake)
  • Federated Investors – 3.3 million shares (0.16% stake)
  • the State Teachers Retirement System of Ohio – 3.5 million H-P shares (or 0.18%)

H-P also said that the money management arm of General Motors, a small but potentially influential holder, favors the merger, according to ZDNet News.

On March 5, 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 (see Proxy Advisor Backs H-P/Compaq Combination).  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.

Opposing Views

However, one key ISS client that has decided not to follow the recommendation is the nation’s largest public pension system, the California Public Employees Retirement System, of CalPERS
(see CalPERS Opposes H-P, Compaq Combination). Of course, even though CalPERS is a $151 billion pension fund, that’s just 0.4% of the outstanding HP shares. 

Joining the merger opposition on Friday were:

  • – the New York Common Retirement Fund, which owns 6 million shares each of Compaq and Hewlett-Packard, will vote against the merger (0.32% of the total – see New York Fund Joins HP-Compaq Opposition)
  • the New York State Teachers’ Retirement System, with its 7 million shares (0.37% of the total HP shares outstanding)
  • the Public Employees’ Retirement Association of Colorado, 1.3 million shares

Those votes lined up with Thursday’s decision by the California State Teachers’ Retirement System (CalSTRS) to weigh in with its 3.3 million H-P shares, roughly 0.2% of the outstanding shares, against the acquisition (see CalSTRS to Vote against HP Compaq Deal).

Also on Thursday, the Public Employees Retirement System of Ohio said it will vote 4 million shares, about a 0.2% H-P stake, against the merger (see Pension Funds, Managers Weigh In on H-P Deal).  Brandes Investment Partners, Wells Fargo, the Torray Fund and Victory Capital Management have all registered their opposition to the acquisition.

On the Other Hand

The merger has received the official support of H-P’s fifth largest shareholder, Putnam Investments (2.51% of the total outstanding), as well as:

  • Banc One Investment Management (0.3% stake)
  • Barclays Global Investors (3.1% of HP) 
  • Alliance Capital Management (with a 2.3% stake in the company)

The vote for Hewlett-Packard shareholders will come tomorrow – though the final result may not be known for awhile. IVS Associates, the company which counts votes, will gather up mounds of ballots from up to 900,000 investors holding nearly 2 billion shares, and secretly transport them back to its base in Newark, Delaware, for counting, according to Reuters.