In HP Proxy Fight, Even Small Investors Are King

Suddenly, Charlie Howell is a popular guy in corporate America. In the last few weeks he has received numerous letters from titans of the business world seeking his blessing.

Howell is no deep-pocketed financier or influential analyst. But he owns 100 shares of Hewlett-Packard Co. stock.

And in the bitter fight over the proposed merger of HP and Compaq Computer Corp., the votes that Howell’s 100 shares represent are critical to HP executives pushing the $22-billion merger as well as to heir Walter Hewlett, who opposes it.

“It used to be I would get one routine mailing a year around the annual meeting asking me to ratify candidates for the board and vote against shareholder proposals,” said Howell, 45, who was a writer and producer on the “Pinky and the Brain” cartoon. He bought the shares in 1998.

“Now I get all these letters and proxies saying vote this way or vote that way and how important it all is. Now they love me.”

Actually, they love his votes, because this is the rare proxy battle that may not be decided solely by institutional investors and their large blocks of stock. In this fight, the big players are divided over the wisdom of the merger, so the fate of the deal rests with small investors such as Howell, who make up the bulk of HP shareholders.

“It does come down to the retail investor, meaning the individual stockholders,” said Sarah Teslik, executive director of the Council of Institutional Investors, which has not taken a position on the merger.

The last major proxy battle that ended up being decided by individual stockholder votes was the 1999 challenge to Venator Group Inc. (formerly Woolworth) by its largest stock owner, Greenway Partners.

That fight, won by Venator, did not get nearly as much public attention.

The most effective way to get to individual stockholders is through direct mail. “They are not as easy to reach as the big investors,” Teslik said, “so the paper flies.”

It can get personal. Institutional investors have staffs of analysts to dispassionately evaluate big deals solely on the numbers.

Individual stockholders, though, sometimes make decisions based on less tangible factors. Howell, for instance, was turned off by the tone of the some of the HP letters.

The first mass mailing was sent by Walter Hewlett, who is the son of company co-founder Bill Hewlett and a member of HP’s board. He told the company’s 900,000 stockholders in a letter dated Jan. 13 that he thinks the proposed merger would “significantly diminish the value of your investment in Hewlett-Packard.”

A Bombardment of Green and White Cards

The company struck back three days later with an attack on Hewlett, describing him as “a musician and academic. . . . Walter has never worked at the company or been involved in its management. His motivations and investment decisions are likely to be very different from your own.”

The battle was on.

“I started getting letters and packages, one after the other, from both sides,” said Dick Harmon, a retired public relations executive in San Juan Capistrano. He has 400 HP shares.

“We would get green cards and white cards, and then we got a beautiful blue, white and yellow book from HP called ‘A Case for Change,’ ” said Harmon, 78.

The green cards were proxies from Walter Hewlett, allowing his chosen slate to vote against the merger at the annual meeting. The white cards were the HP proxies.

A shareholder can sign and send in several cards, but the last one received is the one that counts.

“That’s why we sent several of the green proxies out,” said Todd Glass, a Walter Hewlett spokesman. “If they signed a white one, we hoped they would later get one of our letters and decide to send in the green card.”

But does it take so many letters and proxy cards to get the point across? “It’s silly. Anyone who is going to respond will respond after the first one or two,” said shareholder Dave Powell, 51, of Gardena.

More important to many stockholders was the cost of sending out proxies--some investors had received as many as six from HP and five from Hewlett--plus additional letters.

“I have a 3-inch stack of the stuff,” said Carol Darnell, 58, a database analyst for Hertz Corp. in Oklahoma City who has about 600 shares. She works on and even “loves” HP computers, but not the expenditures by the company in the proxy fight. “I got one yesterday that was sent overnight mail and two or three in the last week. And each of the proxies have return postage on them.”

She didn’t care about the funds Hewlett was spending in his effort. “It’s his money,” said Darnell, “but the money the company is spending is my money as an investor.”

A spokeswoman for Hewlett-Packard, who would not disclose how much the company has spent on the campaign, said shareholders should not blame the company for the expense.

“The shareholders have Walter Hewlett to thank for the cost we’ve endured since much of the spending was geared toward setting the record straight and correcting his misleading information,” said Rebeca Robboy of HP.

Hewlett has spent about $32 million on the battle, including the proxies, letters and newspaper ads, Glass said.

Personal Attacks Viewed as a Turnoff

The tone of the letters from HP often has been accusatory, which has been a turnoff for Howell. He said he understands the company’s trying to boost Chief Executive Carly Fiorina, but not at the expense of the company heir.

“They try to make him out to be a flake,” he said. “And they refer to him as ‘Walter.’ It bugs me. I don’t think he ever referred to her in his letters as ‘Carly.’ ”

Howell has sent in a green proxy card, voting no to the merger, and said the letters from both sides helped him decide. Powell and Darnell also sent in green cards.

An HP employee in Kansas City who did not want his name used said he was influenced by the letters to vote yes even though he does not like the current management of the firm.

“The more I read of Walter Hewlett’s writing, the less I could trust him. He never gave me anything of substance,” he said.

On Tuesday, barring any voting problems or court challenges, the matter will finally be brought to rest. Howell is looking forward to it, even if the vote doesn’t go his way.

“Frankly, either side could be right,” he said, “and if the merger goes through I’ll be rooting for it to succeed. I own the stock.”