Confused, dazed small investors key to merger?

Peter Henderson

SAN FRANCISCO: Jon and Lisa Rourke voted their small stake of Hewlett-Packard

Co. stock against plans to buy Compaq Computer Corp. -- three times.

Since then they have received about a half dozen more ballots.

"It's ridiculous," said Lisa. The couple owns around 1,000 shares

of HP, less than one-millionth of HP's total stock outstanding.

But neither HP management, eager to create a global technology powerhouse,

nor Walter Hewlett, a founding family scion afraid that HP is making a $21

billion mistake, is taking three 'no's for an answer. This is because investors

can vote as often as they want to, but only the last vote counts -- and it may

count a lot.

Retail investors who collectively hold nearly 25 per cent of HP shares have

the power to decide the fate of the biggest computer industry merger ever, given

that many analysts call the race a dead heat.

HP founding families and allies with 20 per cent or more of HP stock line up

against what analysts believe is a roughly equal bloc of management backers,

including a few major funds and many index funds that follow the advice of a

pro-merger advisor, Institutional Shareholder Services.

HP and Hewlett both have taken out full-page advertisements in national

newspapers for weeks and have substantial Web sites that support their opposing

views. HP ads on leading Web sites tout HP's merger math that show a merged

company will lead many technology product categories.

There are some 900,000 HP investors, and the retail ones, who often do not

vote in proxy battles, may be the key.

And so, on Wednesday morning, UPS delivered two more ballots -- a white one

from HP and a green one from Hewlett -- in two overnight letters with paid

return, overnight envelopes, letting them change their mind before the March 19

HP shareholder meeting.

The final results probably will not be confirmed for days or weeks after the

merger vote, although some supporters of the deal expect an early indication of

which side won.

Meanwhile, some small shareholders are dazed and confused, even if they also

admit to being secretly pleased with the attention and power.

"I feel like if I'm confused, who isn't confused?" said Jon Rourke,

a former HP employee and engineer. They have quit answering the phone in the

late evening, when the rush of proxy solicitors with blocked caller IDs start

ringing -- three or four times a night, they think.

Hard-ball politics



Both sides' solicitors are calling, although HP appears to be digging deeper.

"When it gets down to calling retail investors, I think it is pretty

absurd for the corporation to do that. I guess it means they are in a pretty

tight spot," said William Urban, an investor who manages 2,200 HP shares in

four accounts -- and has received more than 40 ballots, as well as phone calls.

"To receive this many sort of disgusts me." The negative tone of

the battle has turned off many investors. HP Chief Executive Carly Fiorina has

been learning on the job, said Walter Hewlett, a dissident director who HP has

dismissed as a dilettante academic and musician.

Merger opponents have been the loudest retail investors, especially on the

Internet, although Fiorina makes the point that message boards are powered by

vitriol.

"They tend to be negative in nature, so I don't think they are a good

predictor of a shareowner vote for sure. And I also think it is fair to say that

those who oppose this deal have more of an incentive to speak out than those who

are for it," she told reporters recently.

"The more you look at the substance of the deal, the more compelling the

deal becomes. Those who oppose the merger are trying to gather momentum for

their side."

Small money matters



Neither HP nor Walter Hewlett, who says HP should focus on printing and cut down
its PC business rather than expand it, apologizes for playing expensive,

hard-ball politics.

Hewlett spokesman Todd Glass accused HP of spending much more on the process

-- $100 million to $125 million, including bankers' fees -- while HP spokeswoman

Rebeca Robboy said Hewlett's statement that his backers have set aside just $32

million was "bogus."

HP was spending much less than Hewlett estimated, and the battle was his

fault, anyway, she said. "There is a lot at stake," said Robboy.

"Shareholders have Walter to thank" for the battle, since he did not

force discussion in the board room, he said. "We could have avoided this

whole contest, which we certainly didn't anticipate."

Hewlett said he made his position clear long ago. However, overnight priority

letters, piles of position papers and scores of calls have also convinced retail

shareholders that they are important.

"Individual shareholders will make or break this merger. If they are

smart, they will vote for the merger. Present management will then know they are

indebted to the small investor and not the Packard family," wrote

Bvernon33, a lonely pro-merger voice on the Yahoo message board.

Urban had basically the same message, although he has voted against the deal.

"I sort of want to see this merger fail, because a merger this big has not

been shut down by the shareholders in a long time," he said. "It would

be sort of inspiring."