Press Releases

SAN FRANCISCO — The Packard family’s charitable foundation plans to vote its 10.4 percent stake in Hewlett-Packard Co. against the $25 billion acquisition of Compaq Computer Corp., a severe blow for the deal and HP leader Carly Fiorina. 

The decision means that Hewlett and Packard family interests with about 18 percent of HP shares are lined up against the deal, which will require the majority of votes cast to win approval. More importantly, analysts believe many shareholders on the fence will be heavily influenced by the Hewlett and Packard families. 

“I don’t know how they dig out from underneath this,” said analyst Rob Enderle of the Giga Information Group. “I think for all practical purposes, the merger is dead.” 

Foundation chairman Susan Packard Orr, a daughter of HP co-founder David Packard, said in a statement Friday that “after thorough study and analysis the board has preliminarily decided, on balance, that the best interests of the foundation would be better served by Hewlett-Packard not proceeding with the proposed transaction.” 

The foundation is the single largest HP shareholder. 

HP spokeswoman Rebeca Robboy said the company was disappointed but still firmly committed to the deal. She said HP would keep stressing the deal’s potential benefits to the public in hopes of persuading the Hewlett and Packard heirs to change their minds. 

“We continue to believe that this merger is the one best way to deliver the earnings growth our shareowners expect and our employees deserve,” she said. 

The news pleased HP investors. HP shares rose 19 cents to $23.52 on the New York Stock Exchange before the announcement, and added $1.63 to reach $25.15 in after-hours trading. Compaq gained 21 cents to $11.32 in regular trading, then dropped $1.31 to $10.01 after hours. 

The $6.4 billion Packard Foundation, based in the suburb of Los Altos, has the vast majority of its holdings in HP stock. Its trustees include three daughters of HP co-founder David Packard, plus former HP chief executive Lew Platt and former chief operating officer Dean Morton. 

The foundation does not include Packard’s only son, David W. Packard, who had already announced his opposition to the deal along with HP board member and heir Walter B. Hewlett last month. Hewlett has been gearing up for a proxy fight over the merger by filing several critical reports with the Securities and Exchange Commission. 

Walter Hewlett said Friday he has been meeting with other HP shareholders and has found “sizable and widespread opposition to this transaction.” 

“All signals have been negative for this transaction,” he said in a statement. 

Fiorina met with the Packard Foundation’s board this week to lobby for the support of the trustees, who also sought counsel from outside advisers. 

Palo Alto-based HP and Houston-based Compaq believe they could form a behemoth to rival IBM, with increased ability to define high-tech industry standards. Executives say Compaq would double HP’s services business, add heft to its lineup of computer servers and improve the cost structure of its struggling personal-computer division. 

Critics say Compaq, which is losing money, would too strongly dilute HP’s profitable printing business and increase its exposure to low-margin personal computers and high-tech support. Even some analysts and investors who see merits to the deal believe the complex integration of Compaq and HP is too risky to attempt. 

Other opponents have accused Fiorina of losing sight of the company’s core principles, the fabled “HP Way.” David Packard in particular has said he was distressed by management’s plans to cut 15,000 jobs after the deal closes. 

“This clearly sets the tone for some fairly bitter battling,” said Martin Reynolds, a research fellow at Gartner Dataquest. “It puts the HP board on the spot in investing in a campaign (for votes). It’s going to be tough to convince people.” 

Earlier Friday, the HP executive overseeing the complex combination said HP can affirm its traditional principles and improve its future prospects with the deal. 

Webb McKinney, a 32-year HP veteran, said the HP Way has always held that change is essential for the company, and he added that debate over it is nothing new. When HP stopped providing free doughnuts for employees in the 1980s, many people complained it was the end of the HP Way, he said. 

“There are a lot of misrepresentations about Carly and the HP Way,” McKinney said in an interview. “A lot of people come to HP on a quest for finding out what the HP Way is, like there’s a tablet somewhere. The corporate objectives change every few years. It’s always been an evolution. ... We will continue to change with or without the merger.” 

He declined to speculate how HP would be affected if the Compaq deal were to fall through, saying management expects shareholder approval despite opposition from the heirs. 

Although HP and Compaq must continue to operate as competitors and separate organizations until the deal gets shareholder and regulatory approval, McKinney and Compaq’s chief financial officer, Jeff Clarke, speak daily and meet regularly to plan the integration. 

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On the Net: 

Companies: 

http://www.hp.com 

http://www.compaq.com 

Packard Foundation: 

http://www.packard.org