Hewlett-Packard Co. inched closer Wednesday to finalizing its controversial $19-billion bid to acquire Compaq Computer Corp. after it announced that 51.4% of voting shareholders cast their ballots in favor of the deal.
According to a preliminary tally of proxy votes, 837.9 million shares voted in favor of the merger and 792.6 million voted against it. An "insignificant number" of votes remain to be counted, but not enough to sway the deal, HP said.
The tallies, compiled by proxy certification firm IVS Associates, come less than a week before a Delaware judge hears arguments in dissident HP director Walter Hewlett's lawsuit seeking to stop the merger. Analysts and legal experts say Walter Hewlett faces an uphill fight. If HP's margin of 45 million votes holds up, it would be enough to overcome claims by Hewlett that 17 million "yes" votes cast by Deutsche Asset Management should be thrown out.
Hewlett, son of company co-founder William Hewlett, alleged in his lawsuit that HP improperly steered business to Deutsche Bank to win the bank's support for the deal.
Hewlett indicated Wednesday that he would continue his fight.
"The margin of this vote was extremely narrow," said the William R. Hewlett Revocable Trust, which counts Walter Hewlett as a trustee and holds 3.7% of HP shares. "These are preliminary results, and both sides will have the opportunity to examine and challenge the proxy tabulation prior to final certification.
"In addition, the pending litigation with Hewlett-Packard in the Delaware Chancery Court must be heard before any final outcome is determined."
With shareholders voting in favor of the merger by a margin of 2.8 percentage points, the only real hope for Hewlett now is that Judge William Chandler III may be so troubled by allegations of vote buying that he will throw out all the ballots, not just the ones in dispute, analysts said.
"The Delaware Court of Chancery could void the election, especially if HP's 'vote buying' was egregious and there is a suggestion that Deutsche Bank wasn't the only target," said Reinier Kraakman, an expert on corporate law at Harvard University.
Hewlett might have to depend on the second key allegation in his lawsuit, that HP improperly swayed the influential Institutional Shareholder Services, which endorsed the takeover, said Columbia University corporate law expert John Coffee, who has done consulting work for HP.
"If he won that, then there is an argument that the court could give relief by requiring a new election," Coffee said.
HP revealed this week that federal investigators from the Justice Department and the Securities and Exchange Commission are looking into Hewlett's allegations.
But even a revote isn't likely to change the ultimate outcome, said Mark Specker, managing director of SoundView Technology Group in San Francisco. Most shareholders are "likely to vote along very similar lines," he said.
The main opponents of the deal were the families of co-founders William Hewlett and David Packard, which together with their trusts and foundations control about 18% of the company's shares. Without their votes, the acquisition would have been approved by a margin of about 2 to 1, the company said. Compaq shareholders approved the deal in mid-March.
"We are gratified that the preliminary vote tally validates that HP shareholders voted the majority of their shares in support of the merger," said Chief Executive Carly Fiorina, who lobbied intensely to overcome initial skepticism about the deal.
"We are eager to put this difficult period behind us and look forward to doing business as the new HP."
If Walter Hewlett requests one, a recount of the proxy votes would last about a week. A process for challenging the final tally also could take an additional day or two. After that, IVS can release a final, certified vote tally.
To vote shares in the proxy battle, shareholders had to check off a box on a card to say they were for or against a slate of candidates that would express their wishes at the HP annual meeting.
The voter also could check off a box to abstain. About 1 million votes are still being examined, according to a source familiar with the situation.
HP released the results of the tally after the markets closed. During regular trading on the New York Stock Exchange on Wednesday, HP shares rose 5cents to close at $18.65 and Compaq shares gained 28 cents to close at $10.68.