Packard Foundation says no to Compaq/HP merger

Packard Foundation makes preliminary decision to oppose merger with Compaq. However, both vendors say its full steam ahead for the merger.

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By  Greg Wilson Published  December 10, 2001

The proposed US$25 billion merger between Compaq and HP could be heading for the rocks, after the David and Lucile Packard Foundation reached a preliminary decision to oppose the deal.

“The board of trustees understands the strategic considerations being addressed by management, but after a thorough study and analysis the board has decided, on balance, that the best interests of the foundation would be better served by Hewlett-Packard not proceeding with the proposed transaction,” said chairwomen Susan Packard in a statement.

The foundation, which holds approximately 10% of HP, is seen as a critical ‘swing’ vote within the organisation. According to John Heath, executive vice president for the Brenner Group, a financial analyst firm, the Packard Foundation’s influence could exceed their relatively small percentage holding.

“In terms of percentage ownership they are not great. But psychologically, it’s a pretty negative vote,” said Heath. “It’s a pretty strong condemnation… it’s going to be tough to overcome that.”

Both HP and Compaq jumped to the defence of the merger, reaffirming commitment to the deal. “We are disappointed by the Packard Foundation’s preliminary decision. Nevertheless, our responsibility to shareowners, customers and employees requires that we maintain a pragmatic view of he business and the future,” said the companies

“Over the coming weeks, we’ll continue to provide additional information to shareholders about the merger, and we believe they will increasingly understand its benefits,” added an HP spokesperson.

Walter Hewlett, a board member with HP and son of the founder William Hewlett is also opposing the merger.

The Packard Foundation's move also doesn't bode well for HP CEO Carly Fiorina. Some analysts have said they don't expect Fiorina to remain as CEO if the deal fails.

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