Fate of HP-Compaq Deal on the Line

Hewlett-Packard Co.’s effort to buy rival Compaq Computer Corp. will face a key test today as a foundation that controls more than 10% of HP’s shares debates which way to vote those holdings.

The David and Lucille Packard Foundation of Los Altos will hear from Booz Allen Hamilton, a consulting firm that the nonprofit group hired to advise it on the $21-billion merger.

If the foundation’s 12-member board decides to oppose the deal, analysts and shareholders said the plan probably will fall apart.

The board might not decide anything today, instead agreeing to pick up the matter later next year, said George Vera, the foundation’s chief financial officer.

HP Chief Executive Carly Fiorina and Compaq CEO Michael Capellas argued for the transaction Wednesday before four of the foundation’s directors.

Some shareholders have criticized the proposed combination, saying it will dilute HP’s profitable printer business, create too much overlap in personal and larger server computers, and result in a conflict of cultures between employees of the two companies.

David W. Packard, the son of the late founder Dave Packard, has spoken out against the merger, as has the family of founder William Hewlett, who also is deceased.

Fiorina and Capellas have said the merger would help the companies compete against IBM Corp., which sells more high-end computers to big businesses and gets more money from high-profit business services.

David Packard is not on the Packard Foundation board, but his three sisters are. So are his two brothers-in-law, as well as former HP CEO Lew Platt and former HP Chief Operating Officer Dean Morton.

“The merger comes down to one question: Which way does the David and Lucille Packard Foundation vote?” Lehman Bros. analyst Dan Niles said.

The meeting is scheduled to last most of the day, Vera said.