ISS Could Seal Fate of HP-Compaq Deal

Shareholders in Hewlett-Packard Co. have a few weeks remaining to consider how they will vote on the company’s controversial plan to buy Compaq Computer Corp., but the fate of the $22-billion deal could effectively be sealed this week, analysts say.

An estimated 10% of HP shares--a block that could determine whether the largest-ever computer merger succeeds--will be voted in accordance with the opinion of Institutional Shareholder Services, which plans to disclose its position on the deal by Tuesday.

ISS, as it is known, advises some 700 funds how to vote in proxy battles, and many of its clients are obligated because of the structure of their funds or potential conflicts of interest to follow ISS advice.

Although some fund managers expect ISS to side with HP management and endorse the merger, a surprise decision by the Bethesda, Md.-based firm to oppose it could sway enough votes to all but scuttle the deal, which has failed to muster much enthusiasm on Wall Street, analysts say.

The battle over the merger has grown nasty in recent days, pitting HP Chief Executive Carly Fiorina, who says the merger would create a technology powerhouse to rival IBM Corp., against dissident director Walter Hewlett, who says the deal would saddle the company his father co-founded with a low-margin personal computer maker.

Hewlett wants Fiorina fired if the deal is scrapped. Fiorina says Hewlett has been deceptive by leaking details of discussed executive pay deals as well as by floating talk of bringing back former HP CEO Lew Pratt to steer the company in the interim. Both sides have buttressed their views with studies commissioned by outside analysts.

HP shares, at $20.21 at Friday’s close on the New York Stock Exchange, were down 13% since the deal was announced Sept. 3, compared with a 3% rise for IBM over that period.