As Hewlett-Packard Co. nears next week's shareholder vote on its planned US$22 billion acquisition of Compaq Computer Corp., the finish line may be receding: The closer the vote, the less likely it is an outcome will be immediately available.
Shareholders are allowed to cast votes right up until the polls close, which for HP shareholders will be during the company's special meeting Tuesday in Cupertino, California. Compaq will hold its shareholders meeting the next day, in Houston.
Both sides have for weeks been mailing out proxy voting cards, white for a vote for the deal and green for a vote against. Voters can send in multiple proxy cards, casting and reversing their votes several times. Only the most recently cast vote counts. While the proxy cards have been circulating for weeks, large investors and institutional shareholders typically cast their votes in the last few days or hours.
Those proxy votes are sent to solicitors for each side, allowing both HP and those fighting to defeat the merger to keep an eye on developing voting patterns. By the time HP's shareholder meeting starts, both sides will know approximately how many votes their proposals received. But if neither side attracts enough votes for a decisive victory, HP could postpone announcing an outcome.
It's also possible that both sides could declare victory, based on their interpretation of the preliminary results.
The final arbiter on the vote tally will be IVS Associates Inc., a small firm based in Newark, Delaware that specializes in shareholder vote tabulations. IVS Associates' tabulations typically take several weeks. But with the HP contest, the company isn't offering any estimates on how long certifying an outcome will take.
"That's the $64,000 question," said IVS Associates President William Marsh. He declined to offer any inside or outside guesses on the process' likely duration.
There's precedent for an extended battle. Shaving products maker The Gillette Co. faced a similarly down-to-the-wire proxy fight 14 years ago to fend off an investment firm's takeover attempt. It took days for an official vote to determine that Gillette had squeaked past its opposition. Then came the lawsuits. Gillette ultimately had to make an expensive one-time payout to shareholders to shake free of its hostile suitor.
One industry observer isn't anticipating a quick result in HP's fight.
In an article titled "Return of the Chads?" Mike Elgan, editorial director of HP enterprise users group Interex, warned the group's members that challenges to the voting results by the losing side could keep the deal's outcome an open question for quite some time.
"Most analysts predict that the vote will be very close, so each side will use every tool available to win. That means more hanging-chad-like controversy, accusations of stolen outcomes, 'snippy' public exchanges between combatants and possibly even a lawsuit or two," Elgan wrote. "Even in a best-case scenario, one without a close or disputed outcome, the final results won't be known for several days at least, and possibly not for more than a week."
Elgan's article is available on Interex' Web site at http://www.interex.org/. Interex owns shares in HP, which it said this week it will vote in favor of HP acquiring Compaq.
Right now, more than 20 percent of HP's shares are committed to the acquisition's opposition. The bulk of that total -- more than 18 percent -- comes from the family members of HP's co-founders and their trusts. Also joining the dissenters are institutional investors Bank of America Capital Management Inc., Wells Fargo & Co., Brandes Investment Partners LP and the pension fund of the California Public Employees' Retirement System (CalPERS).
Fewer shareholders have come out in favor of the merger. Those that have include Alliance Capital Management Holding LP, Putnam Investments Inc. and Barclays Bank PLC. Those stakes total around 6 percent of HP's outstanding shares.
Barclays pledged to vote its shares in accordance with the recommendation of Institutional Shareholder Services Inc. (ISS) to avoid the appearance of a conflict of interest. One of Barclays' top executives, Patricia Dunn, global chief executive of Barclays Global Investors, sits on HP's boardISS last week recommended that its subscribers vote for the acquisition. Twenty-three percent of HP's shares are owned by ISS subscribers, but analysts' estimates on how much influence ISS' recommendation is carrying vary. Several of those opposing the deal, including CalPERS, are ISS clients.
As the days left before the shareholder vote dwindle, HP executives and the dissenting group led by Walter Hewlett have increased the tenor of their appeals. Accusations and press releases are now issued almost hourly.
Hewlett continues to reiterate the points that have for months formed the core of his campaign, including the dismal history of IT mergers, the risk that by acquiring Compaq, HP will increase its reliance on a slumping PC market, and the acquisition's potential to distract HP from its lucrative printing and imaging business.
Meanwhile, HP argues that Hewlett offers no viable vision for the company's future if it remains on its own. Acquiring Compaq is HP's best chance to leapfrog to a leadership spot in many sectors of the rapidly changing IT market, HP executives maintain. Clients want one-stop shopping, and by absorbing Compaq, they'll create a software, hardware and services behemoth able to compete against IBM Corp. for the industry's largest contracts.
Walter Hewlett is spending this week traveling, lobbying for votes from undecided shareholders. HP is using its final days for a blizzard of conference calls and other communication intended to convey the depth of its integration planning and commitment to promptly addressing employee and customer uncertainty once the acquisition is approved.
It is rare for the outcome of a shareholder vote, even one that has turned into a proxy fight, to be so unpredictable this close to the end. But then, as HP's leadership has said repeatedly, there's never been a merger like this one.