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Walter Hewlett speaks out

As dissident HP director Walter Hewlett argues against the Compaq merger, one of HP's top 20 institutional investors announces its decision to vote against the deal.

As dissident Hewlett-Packard director Walter Hewlett argued against the mega-merger with Compaq Computer, one of HP's top 20 institutional investors confirmed Wednesday its decision to vote against the deal.

Banc of America Capital Management, HP's third-largest institutional investor, with a 2.73 percent stake, has decided to cast its votes against the highly contentious merger at the March 19 HP shareholders meeting.

Although Banc of America holds a significant stake, the number of shares it directly controls and votes is only 6 million shares. The remaining HP shares are held for such clients as other institutional investors and wealthy customers, who will be casting their votes as they choose, according to Banc of America spokesman Joe Fazzino.

Banc of America's decision was based on how the combined company "changes the business mix, and we think it will be dilutive to earnings on an operating basis going forward. And the merger faces huge integration challenges," Fazzino said.

The decision brings the number of top 20 HP institutional investors that oppose the deal to three, excluding foundations affiliated with the Hewlett and Packard families. Only Banc of America and Brandes Investment Partners have been willing to go public with their opposition.

Recently, both sides have been engaged in a tug-of-war over this top 20 list. On Monday, HP director Phil Condit said the company was gaining the support of most on the list.

Despite this latest decision by a major institutional shareholder, HP spokeswoman Rebeca Robboy said the company stands by Condit's comments.

The race to win votes is getting fevered, as both camps seek to win over more than 50 percent of the shareholders by next Tuesday. As part of his conference call to shareholders and analysts, Hewlett outlined his strategy, his future role as a director, and the divesture schedule of HP shares by the Hewlett family, their trust and foundation.

Hewlett noted this collective group holds about 109 million shares and that the William and Flora Hewlett Foundation plans to reduce the 35 percent HP waiting in its portfolio to around 15 percent during the next three years.

"We will continue to be a long-term holder of HP," Hewlett added.

And the dissident director is engaging in a high-stakes campaign of shareholder activism. In his conference call, Hewlett stressed his distaste for HP's current strategy.

"HP's goal of becoming an end-to-end solutions company will lead to a lack of focus and has lead many conglomerates to their downfall," Hewlett said in a conference call to analysts and investors. "HP can't out-Dell Dell and out-IBM IBM at the same time."

Hewlett's remarks come just a week before the HP shareholders vote on the merger proposal. Compaq shareholders vote one day later, on March 20.

Hewlett also reiterated the need for HP to invest in its lucrative printing and imaging business and grow its consulting and services operation through smaller, targeted acquisitions. Hewlett also stressed the need to reduce investment into its low-margin PC business.

"We need to recognize that...HP brings no value to low-cost computing and should not be seeking growth in this area by chasing profitless revenues," Hewlett said.

Finally, Hewlett again sought to ease investors' concerns of a mass exodus of management and directors should the merger fail.

"I don't expect Carly Fiorina will survive as CEO if the merger is voted down by shareholders. This will be her second aborted merger in less than two years, and (she) won't have the credibility to lead the company," Hewlett said.

"I expect to serve on the search committee for a new CEO (should Fiorina leave), and I believe we will look for a current CEO with a track record for creating shareholder value and not get a CEO who again is learning on the job."