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Packard Foundation defends "no" vote

Many large shareholders who see a company headed in the wrong direction just sell their shares and move on. Hewlett-Packard hasn't been so lucky.

Many large shareholders who see a company headed in the wrong direction just sell their shares and move on. Hewlett-Packard hasn't been so lucky.

HP's multibillion-dollar deal to buy Compaq Computer may have prompted some shareholders to sell their stakes, but the heirs of co-founders William Hewlett and David Packard have stayed to fight the deal and are creating the biggest headache for HP.

Some people close to the company have suggested that HP might try to convince the largest of the family's stakeholders, the David and Lucile Packard Foundation, to sell some or all of its entire 10 percent stake to investors that would back the deal.

However, the foundation doesn't appear likely to do that anytime soon.

In an interview Tuesday, Foundation President Richard T. Schlosberg III did not comment specifically on the prospect of selling HP shares in a private placement, but he told CNET, "I see no way in which Hewlett-Packard's stock would not be a significant part of our portfolio."

The David and Lucile Packard foundation, the largest single holder of HP shares, dealt a huge blow to HP's plan to buy Compaq on Friday when it said it had reached a preliminary decision to oppose the deal. Finding a buyer more amenable to the merger for some or all of the foundation's shares has been mentioned as one way HP could try to improve the merger's chances of going through.

Analysts have also suggested that HP might attempt to get Compaq to revalue the deal, giving HP shareholders a greater stake in the combined company and increasing the expected per-share earnings of a merged entity. However, Schlosberg said he did not expect HP to try to reprice the deal in an effort to convince the Packard Foundation and other opponents to change their mind.

HP CEO Carly Fiorina tried to rally the troops in a message to employees Monday.

"While we respect the interests of the family foundations, a high-tech company competing in a rapidly changing market has different requirements," Fiorina wrote in the message. "In addition to taking a long-term approach, it is also our responsibility to represent the interests of all of our shareowners--many of whom judge us on market leadership, value creation and continued growth."

Fiorina pointed out that the company needs a majority of shares voted to approve the deal, something she said is still achievable. "This is a long process and we are only in the early stages," she said.

On Monday, HP representative Rebeca Robboy declined to speculate about the options available to HP as far as changing the minds of those opposed to the deal, but she said "the merger we announced on Sept. 3 is the one we intend to bring to a shareholder vote."

HP is now targeting institutional investors, nearly two-thirds of which would have to approve the deal, given the opposition from the Packard Foundation as well as from other Hewletts and Packards.

David W. Packard, son of David Packard, and HP board member Walter Hewlett have both stated their opposition, as have two Hewlett sisters and several Hewlett family trusts and foundations. Walter Hewlett has said he will solicit votes against the deal if HP brings it to a shareholder vote.

Schlosberg said he can see other large investors reaching a different conclusion than that of the foundation and said the foundation will not be a part of efforts to solicit votes against the deal.

"I imagine that the individual shareholder will have a different risk profile than we would (and) will make a decision differently," Schlosberg said.

Analysts have noted that the HP foundation may have been looking for the most stable option in its merger vote, given the organization's heavy dependence on the performance of HP shares to support its charitable endeavors. Schlosberg said the foundation may look at reducing its exposure, but that decision is separate from its conclusions on the merger.

"The whole question, frankly, of diversification is one that we have considered and are considering," he said.

Schlosberg declined to go into the specific rationale for the vote against the deal, but said it was unanimous.

"We made our determination on this particular merger proposal based on the best interest of the foundation over the long term," Schlosberg said. Even though the vast majority of the foundation's assets are in shares of HP and spinoff Agilent Technologies, Schlosberg said the foundation keeps enough cash and other liquid investments on hand that it would not need to sell HP shares for a year or two.

Schlosberg would not say what recommendation the foundation received from consultant Booz-Allen & Hamilton, but said board members of the foundation also did their own research into the deal.

"The foundation collected a broad variety of data," Schlosberg said. "We reached our decision based on a variety of data."