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What to expect on HP's day of reckoning

Six months of acrimony will crescendo Tuesday as shareholders vote on the merger between computing giants Hewlett-Packard and Compaq Computer.

Six months of acrimony will crescendo Tuesday as shareholders vote on the merger between computing giants Hewlett-Packard and Compaq Computer. See special coverage: A Fight to the Finish

At 6:30 a.m. PST, the doors to the Flint Center in Cupertino, Calif., opened to conference halls and annexes for as many as 3,700 HP shareholders eager to approve or scuttle the $20.7 billion deal.

The meeting kicked off at 8:30 a.m., after a 30-minute delay so that more shareholders could be packed into the hall and an overflow room. HP CEO Carly Fiorina began the meeting with a formal welcome before opening the voting polls.

Shortly before Fiorina's comments, sources close to the vote indicated that Capital Research & Management, HP's largest shareholder, with a 3.45 percent stake, was likely to vote in favor of the deal. If Capital Research & Management votes for the merger, HP will have four of its top five shareholders voting for the deal.

A spokesman for Capital Research & Management said the firm will not make "any sort of announcement now or later about our voting intentions."

Most shareholders have already submitted proxy cards by mail to HP's independent proxy solicitation firms, rendering the actual shareholder meeting little more than a symbolic finale to the computer industry's largest proposed corporate merger.

But hundreds of individual investors--including HP workers and small investors who live in the San Francisco Bay Area--are expected to attend the event, which will likely last several hours. Individual investors represent only about one-quarter of HP's outstanding shares, but the vote will be close, requiring each side to find support anywhere it can.

Results of the vote will have dramatic consequences for executives and workers at HP and Compaq, and the tally will have ripple effects throughout the computer industry. Walter Hewlett, son of co-founder William Hewlett, calls the merger proposal "a $25 billion mistake" that would ruin both companies and provide rivals such as Dell Computer and IBM key footholds among burned customers of HP and Compaq.

HP executives, led by Fiorina, say the recession and bitter competition from IBM and Dell have left the companies few choices but to consolidate to cut costs and streamline product categories.

Many of HP's largest and most high-profile investors have already announced plans to vote against the merger.

Those institutions voted by mailing their responses to proxy solicitors--not unlike absentee voting in a political election. HP has asked shareholders to send back white cards indicating support, while Hewlett and other enemies of the merger have asked shareholders to return green cards indicating opposition to the deal. Some shareholders plan to wear white or green, depending on whether they want to support or scuttle the deal.

Schedule of events
During the polling period, Fiorina will answer questions from shareholders in the audience, and Hewlett--the most adamant among the opposition--will be able to address the audience and spar against Fiorina. In general, journalists and other independent observers will not be able to attend the event, which is technically open only to those people who purchased HP stock before Jan. 28. (HP is telling attendees to bring an account statement and photo identification to guarantee entry.)

After the question-and-answer session, Fiorina will announce that polling hours have ended. Fiorina and other HP executives will host a news conference a half-hour after the shareholder meeting ends at the Flint Center. Roughly an hour after that news conference ends, Hewlett and others opposing the deal will host a news conference at the Hilton Garden Inn Cupertino across town.

Proxy solicitors for both sides will add up the votes. A representative from Newark, Del.-based IVS Associates will then take the paper ballots back to IVS's headquarters for counting.

Michael Barbera of IVS Associates would not say whether the IVS representative would fly back in a commercial or private jet--or whether the agent would fly at all. The IVS worker's transportation plans will remain top secret to protect the worker from getting robbed of proxy statements by an unscrupulous shareholder or interested party.

"You laugh, but it happened once before," a harried Barbera said Monday.

Once the statements arrive in Newark, IVS will begin the equally top-secret process of counting votes. It's unclear how long the counting will take, but Barbera said it could continue for several weeks, depending on how close the vote is.

"I won't know how long it's going to take us until I get all the material here," Barbera said. "This is not a one- or two-week job, but it's not a two-month job. It's somewhere in between."

It's not over until Compaq votes
Compaq shareholders are more likely to approve the deal--in part because HP is paying a premium to acquire the Houston-based computer maker, and in part because few Compaq shareholders have vocally opposed the plan.

But even Compaq's approval is not a slam dunk. Compaq shareholders will host a shareholder meeting at 2 p.m. CST Wednesday at the Wyndham Greenspoint Hotel in Houston to approve or reject the merger.

Compaq spokeswoman Stacey Paull wouldn't estimate the number of likely attendants, but the conference rooms at the hotel fit a maximum of 1,000 people. The Compaq meeting, which will include a speech by CEO Michael Capellas, is scheduled to last roughly an hour. The majority of Compaq shareholders have already voted by mailing proxy statements or voting by e-mail.

With no outspoken family members trying to scuttle the deal, the Compaq vote is expected to proceed quickly. But 100 percent approval is unlikely. Some of HP's large institutional investors opposing the merger own shares in both companies, and many workers who own shares oppose the deal because it could result in as many as 15,000 layoffs.

Approval from Compaq shareholders must also pass a higher hurdle than approval from HP shareholders.

At least 50 percent of all Compaq shareholders must approve the deal for it to go through; those who don't vote at all are essentially voting against the deal. By contrast, only 50 percent of HP voters who cast ballots must approve the deal for it to go through on the HP side. Those who don't vote don't have any concrete impact on whether the merger goes through.