Compaq board sees HP deal winning shareholder approval

HOUSTON: Compaq Computer Corp.'s board of directors said on Thursday it

believes its deal to be acquired by Hewlett-Packard Co. will win shareholder

approval despite opposition by the Hewlett and Packard families.

"We are confident that over the coming months the shareholders of both

companies will recognize the value of the merger and give their approval,"

Compaq's Board said in a letter to Walter Hewlett, a son of one of the founders

and a Hewlett-Packard board member.

"The Board of directors of Compaq has carefully analyzed the short-term

and long-term impact as well as the strategic implications of the proposed

HP-Compaq merger," the company said. The letter was Compaq's response to a

letter sent on Wednesday by Hewlett, a key critic of the proposed $22.8 billion

deal.

In his letter, which came one month after he first spoke out against the

deal, Walter Hewlett, a son of one of the founders and a Hewlett-Packard board

member, said the merger would likely be rejected if there were a shareholder

vote.

There is "enormous unhappiness" about the deal and a "very

high probability" that it would be defeated if it came to a stockholder

vote, Walter Hewlett said in a Dec. 12 letter to the boards of Hewlett-Packard

and Compaq.

Compaq, for its part, said it was let down by the push against the deal by

the Hewlett and Packard families, triggering a fight for shareholders' support.

"We are disappointed that both the Hewlett Foundation and the Packard

Foundation have decided to oppose the transaction. We continue to believe that

the combination of HP and Compaq will provide better market coverage,

significant synergies and higher profits than either company would achieve on

its own. These benefits will lead to the creation of long-term value for both

Compaq and HP shareholders," Compaq's board said in the letter.

"On that basis, we believe that this merger is well worth the effort and

that our employees and shareholders and customers will be better served in the

long term," the letter added.

No date has yet been set for a vote by shareholders, but Merrill Lynch

analyst Steven Fortuna said in a research note on Thursday that he expected the

vote to take place in early March. The companies also are waiting for regulatory

approval in the United States and Europe.

"The Board of directors of Compaq is pleased with the execution of the

company's present strategy and with its market momentum. We intend to maintain

this positive momentum and bring an even stronger Compaq to the merger,"

Compaq's board wrote.