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HP merger gets vote of confidence

Putnam Investments, one of the largest institutional holders of Hewlett-Packard shares, will vote in favor of HP's $22 billion merger with Compaq Computer.

Putnam Investments, a large institutional holder of Hewlett-Packard shares, publicly announced Wednesday that it will vote in favor of HP's $22 billion merger with Compaq Computer.

See special coverage: A Fight to the Finish Although Compaq CEO Michael Capellas had previously said he believed Putnam--Compaq's largest investor--would support the merger, the fund company had declined to comment on its plans until now. Putnam holds 68.9 million shares of Compaq.

"We believe the merger enhances the combined companies' strategic and competitive positions and offers financial benefits to shareholders," Putnam said in a press release.

As of Dec. 31, Putnam held 46.2 million shares in HP, or a 2.5 percent stake. Putnam is HP's fourth-largest institutional holder.

Putnam's announcement counters a recent string of bad news for HP. Other large institutional investors, including Banc of America Capital Management, Wells Fargo, and the nation's largest pension fund, the California Public Employees' Retirement System, recently stated their opposition to the deal. On Thursday, the California State Teachers' Retirement System said it would vote against the deal.

The announcement by Putnam also comes just days before HP shareholders vote on the hotly contested merger. HP shareholders vote March 19, with Compaq shareholders voting a day later.

Not only does Putnam's decision help offset opposition by other investors, it may also go a long way toward helping to woo retail investors to vote in favor of the deal. Individual investors, who may feel less savvy in making a decision on how to vote their shares, may be taking their cues from how the large institutional investors are voting.

With Putnam's announcement, three of HP's top 20 institutional investors have come out in favor of the deal. The other top supporters include Barclays Global Advisors, with a 3.10 percent stake, and Alliance Capital, which holds a 2.34 percent stake. These three firms represent a combined 7.95 percent stake in HP.

That's bigger than the combined stake of the three top 20 investors that have come out against the deal: Banc of America has voting control of roughly half a percent--though its share holdings represent a 2.73 percent stake--Brandes Investment Partners holds a 1.3 percent stake, and a third institutional investor, which has requested anonymity, has a more than 1 percent stake. The California State Teachers' Retirement System isn't in the top 20, holding a stake of 0.17 percent.

"It's a significant show of support," said Rebeca Robboy, an HP spokeswoman. "It's very unusual for institutional investors to make their voting decisions known."

HP directors have previously said they believe HP will ultimately receive support from a majority of its top shareholders. Compaq shareholders are widely expected to support the deal; it offers a premium to those investors and has not run into any opposition.

"We are not surprised that (Putnam), one of Compaq's largest stock holders, would finally support the transaction," said Todd Glass, a spokesman for Walter Hewlett, the dissident HP director who's been waging a public campaign against the merger. "Those opposed to the transaction understand that acquiring Compaq is not in the best interest of HP stockholders."

While Compaq shareholders appear likely to approve the merger, the HP proxy fight has been nasty and expensive, with heavy opposition from Walter Hewlett, son of a company co-founder.

Hewlett, members of his family and the Packard family, and their trusts and foundations have said they will vote against the deal. The combined groups represent roughly an 18 percent stake.

With the shareholders vote rapidly approaching, institutional investors are rushing to make their final decision in the upcoming vote and mail in their proxies in time to reach the proxy monitoring companies by the Tuesday and Wednesday voting dates.

News.com's Larry Dignan contributed to this report.>