Hewlett Family to Vote Against Compaq Deal

The family of Hewlett-Packard Co. co-founder William Hewlett said Tuesday that it will vote its 5% stake against a proposed acquisition of Compaq Computer Corp., casting further doubt over the already unpopular takeover.

The relatives of the recently deceased Hewlett cannot by themselves block the $21-billion acquisition, but their criticism could be the final nail in the coffin for a deal about which Wall Street has been profoundly skeptical since it was announced in September.

The opposition is led by HP board member Walter Hewlett. He said the company co-founded by his father can better create shareholder value without Compaq. The deal, he said, could widen HP’s exposure in the struggling personal computer industry and dilute its profitable printer business.

Hewlett and his relatives had allowed the acquisition to proceed earlier this year when it was valued at $25 billion. But the stock prices of both companies plunged as investors failed to see the benefits of the merger.

“Given the lack of stockholder benefits, I believe the extensive integration risks associated with this transaction are not worth taking,” Hewlett said in a statement on behalf of him, his sisters Eleanor Hewlett Gimon and Mary Hewlett Jaffe, and the family’s charitable foundation.

It was not clear Tuesday how many other board members shared Hewlett’s concerns.

The Packard family, which owns 10% of HP stock, said it was undecided.

HP executives said they remain enthusiastic about the deal. “While we regret very much the Hewlett family’s decision, we are not surprised,” saidaccording to a company statement. “The HP board of directors and HP and Compaq remain fully committed to the merger and expect shareholder approval.”

HP said it would file detailed information about the acquisition with the Securities and Exchange Commission that “will serve as the basis for thoughtful shareowner evaluation.” If the deal doesn’t fall apart, company executives expect it to go through next year.

No date has been set for a shareholder vote.

Although both companies have seemed dedicated to the merger, analysts have been skeptical from the start.

“It was never obvious to us why this made sense,” said Joseph Beaulieu, a senior analyst with Morningstar Inc. “There never seemed to be a lot of synergies.” And one could argue that for companies already as large as the size of these two, economies of scale aren’t really a benefit any more.”

Company observers said the influence wielded by the Hewlett children and their foundation is far out of proportion tofrom their holdings, much aslike the Watson and Ford families hold sway at IBM Corp. and Ford Motor Co., which their ancestors founded.

“This may do an awful lot of damage to the merger plan,” said Rob Enderle, a research fellow with Giga Information Group. Enderle suggested that the HP board, particularly Chief Executive Carly Fiorina, would be severely damaged if the deal fell apart. “If this doesn’t work out, the HP board members would be in trouble.”

But Compaq would take the worst blow if the merger were to fall apart, Enderle said.

Compaq spokesman Arch Currid said the firm remains committed to the merger. “The fundamentals of the deal are unchanged.”

Shares of HP jumped $2.92, or 17%, to close at $19.81 Tuesday on the New York Stock Exchange. Compaq shares fell 49 cents, or 5.5%, to close at $8.50 also on the NYSE.

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Associated Press contributed to this report.