Big HP investor backs Compaq deal

Alliance Capital, which owns about 21.3 million shares, or 1 percent of the computer and printer maker, has endorsed the controversial deal, spokesman John Meyers confirmed Tuesday.

Alliance Vice Chairman Lewis Sanders' opinion on the merger was made public in The Wall Street Journal. Sanders called the deal an "industrial consolidation" that would provide both companies with the best possible chance of succeeding amid a tough market for PCs.

The controversial deal has provoked several statements from HP and from opponents Walter Hewlett and the David and Lucile Packard Foundation.

And although this is the first time an institutional investor has publicly supported the proposed deal, it might not be the last, said Patrick McGurn of Proxy Monitor, a provider of research and vote recommendations for institutional investors.

"These things, whether they're about proxy fights or opposition to management propositions, have gotten much more like political campaigns," said McGurn. "I would expect to see more of this," he added, "though the bulk of institutional investors will probably wait until the proxy statement comes out."

A proxy statement is a document that discloses information about a subject up for a vote, which the Securities and Exchange Commission requires a company to send to shareholders.

McGurn said HP is probably sending out top management along with special envoys to push other large institutions to come out in favor of the merger.

"Clearly they've been on the stump several times," he said, and "they're probably going to go out with a full-blown road show after the formal proxy statement is filed."

Sources close to HP said the company has received indications in recent meetings from a number of institutional investors that they would vote "yes" for the merger. However, an HP representative refused to comment on whether the company was urging institutional investors to speak out.

Though no specific date has been set for the formal proxy statement, it is expected to come out late this month, as the meeting for a vote is expected in March or early April.

"Alliance isn't the type to run out and announce where they stand, this is rare," McGurn said. Alliance's Meyers said the company's policy on voicing its opinions varies from manager to manager.

Other large institutional investors, including Capital Research and Management, and Putnam Investment Management, have refused to comment on their position.

Chuck Freedhoff, a spokesman for Capital Research and Management, the largest institutional investor in HP with around 68.9 million shares, said his organization's policy is not to comment on its position, and it is not likely to do so, he added.

"We don't make our decisions public," Freedhoff said. He also declined to comment on whether HP representatives had been encouraging Capital to do so.

Though most large investors haven't voiced a position on the deal, analysts on Wall Street largely say the deal will be rejected based on the high percentage of shares owned by the deal's opponents.

"Given that the (Hewlett) and Packard families (who control 18 percent of HP's total shares outstanding) have announced that they will vote their shares against the HWP-CPQ merger, we believe that the odds of (HP) receiving a majority of votes in favor of the deal are only about 25 percent," Sanford Bernstein analyst Toni Sacconaghi said in a recent research note.

From a stock standpoint, a "yes" vote from most institutional investors is unlikely: Most own more HP shares than Compaq shares, and the merger is generally expected to drive down the value of HP stock. Sacconaghi calculated that nearly 70 percent of HP's top 200 shareholders own at least two times as much HP stock as Compaq stock.