HP/COMPAQ: Two pension funds join opposition

A pair of pension funds, including the United States' largest, have decided to vote their shares of Hewlett-Packard Co. (HP) against the company's planned acquisition of Compaq Computer Corp.

The California Public Employees' Retirement System (CalPERS) said it decided to oppose the deal because of integration risks, strategic uncertainty and the high premium HP intends to pay for Compaq. Owning shares in a combined company would be less advantageous for CalPERS' portfolio than continuing to own shares in the two independent companies, CalPERS said in a statement posted on its Web site Friday.

Sacramento, California-based CalPERS owns 7.66 million shares of HP, less than half a percent of HP's outstanding shares. The fund also owns 6.63 million shares of Compaq, which it intends to vote against the merger as well, the company said Saturday.

CalPERS' decision differs from the recommendation of Institutional Shareholder Services Inc., an advisory service to which it subscribes. As one of the few institutional investors that regularly announces its voting intentions on shareholder matters, CalPERS is often viewed as a bellwether on contested issues.

Also planning to oppose the acquisition is the Ontario Teacher's Pension Plan Board (OTPPB), which owns 1.46 million shares in HP. The fund does not own shares of Compaq.

The proposed merger lacks "lacks strategic merit and increases Hewlett-Packard's exposure to a troubled commodity PC hardware business," OTPPB said on its Web site Friday. The fund also cited the combination's potential to dilute HP's strong imaging and printing business, a key argument of opposition leader Walter Hewlett.

HP shareholders' votes on the acquisition will be announced on March 19 during a special shareholder meeting in Cupertino, California. Compaq will hold its shareholder meeting the following day in Houston.

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