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Hewlett Foundation sells portion of HP shares

In a move to diversify its portfolio, the William and Flora Hewlett Foundation sells 5.5 million shares--which may bode well for proponents of the HP-Compaq merger.

In a move to diversify its portfolio, the William and Flora Hewlett Foundation recently sold 5.5 million Hewlett-Packard shares--which may bode well for proponents of the hotly contested HP and Compaq Computer merger.

See special coverage: Big iron: HP to buy Compaq The sale of the shares comes as Walter Hewlett, son of one of the HP co-founders and chairman of the William and Flora Hewlett Foundation, is waging a proxy battle against the pending merger. The Foundation and the Hewlett family trust have also come out against the merger.

Despite Walter Hewlett's efforts to nix the multibillion-dollar merger, he had no influence on the Foundation's most recent action. Hewlett does not serve on the Foundation's investment committee, which makes decisions on buying and selling stock for the portfolio, said Laurance Hoagland, the Foundation's chief investment officer.

While the sale of the 5.5 million shares represents a fraction of the nearly two billion HP shares outstanding, proxy battles have been determined by as few as a couple hundred thousand votes over the years, said Patrick McGurn, director of corporate programs for proxy service Proxy Monitor.

"Any shares out there are free agents," McGurn said. "Anyone who buys them and is favorable to the merger will vote for the deal, and anyone who buys them and is against the merger will vote against it. But since the Foundation has stated it plans to vote against the deal, I'm thinking HP must feel every vote counts, and anything that gets pushed into their column makes them happy."

Provided the stock sale was in the open market and not through private placement to a party who is against the merger, HP may have a 50-50 chance to sway the 5.5 million shares into the "yes" column.

Before, those shares would have been voted against the deal by the Foundation.

Often, shareholders who dislike a pending merger deal won't buy new shares, institutional investors say. In fact, they'll often dump their stock before the merger is put to a shareholder vote.

Hoagland declined to comment on whether the shares were sold in a private placement or in the open market, citing the need to keep such market information confidential. Often, companies prefer investors to sell large blocks of stock through a private placement, rather than flood the market with shares, which could possibly lower the stock's price.

Walter Hewlett and his sisters, in addition to the trust and Foundation, hold roughly a 5 percent stake in HP. Hewlett, who as an HP board member initially voted in favor of the deal, has since seen David Packard, a son of the HP co-founder, and his foundation, along with the David and Lucile Packard Foundation, indicate they too will vote against the deal. Combined, the groups hold an 18 percent HP stake.

The William and Flora Hewlett Foundation holds 36.5 million HP shares, which accounts for roughly 18 percent of its $3 billion to $4 billion in assets. The HP slice has ballooned from 2 percent of the portfolio since November 2000.

After the death of co-founder William Hewlett in January of last year, the Hewlett family trust made plans to transfer the millions of shares it holds to the Foundation over a four-year period, Hoagland said. The foundation owns roughly a fourth of the 120 million shares held between the Foundation and the family trust.

This latest sale, conducted between November and December, represented 13 percent of the HP shares that the Foundation owns. That follows the sale of 6.1 million shares between April and November of last year.

"The Foundation has been diversifying since the 1980s," Hoagland said. "Some of the board members convinced Bill (Hewlett) that it was in the best interest of the Foundation."

He added that the Foundation plans to remain a long-term holder of HP stock, but the eventual size of its holdings has not been determined.

Hoagland noted that the Foundation's gradual selling of shares represents a mere 1 percent of HP's trading volume and should not depress share price.