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HP claims slim victory in Compaq merger vote

Hewlett-Packard Co chief executive Carly Fiorina on Tuesday claimed shareholders had narrowly approved her $20 billion plan to buy Compaq Computer Corp, but dissident board member Walter Hewlett refused to concede defeat.

Fiorina immediately moved to quash fears that a tortured count similar to the 2000 election poll in Florida would engulf the HP ballot and said the companies would move ahead full steam with integration planning, including 15,000 layoffs.

Shareholders briefly booed a tired-looking Fiorina during the special meeting to decide whether to carry out the biggest merger in computer industry history at HP, one of Silicon Valley's first start-ups which began in a garage 63 years ago.

But the iron-willed chief brought in three years ago to shake up the ailing company declared victory immediately after the meeting, calling the margin of victory "slim but sufficient."

BACK TO ACADEMIA FOR HEWLETT

Fiorina aims in one stroke to nearly double revenues to more than $80 billion, expand and deepen the entire line of PCs, printers and large computers, and take on current No 1 computer maker International Business Machines Corp.

The shareholder meeting, convened in a Silicon Valley concert hall, gave a warmer welcome to dissident director Walter Hewlett, son of co-founder Bill Hewlett, who afterward said the count was "razor thin" and too close to call. A source in his camp put the pro-merger margin at less than 0.5 per cent.

That would be about 8.5 million of roughly 1.7 billion shares HP says voted. "We disagree with his numbers," an HP spokeswoman said.

Hewlett, who led a spirited four-month campaign against the deal, argues the acquisition would mean giving Compaq shareholders a chunk of HP's valuable printing unit in exchange for a low-technology, low-profit PC business.

His reserved manner is the opposite of Fiorina's outgoing, salesmanship, but Hewlett was greeted as a hero by merger opponents, including some HP employees, as he strode past placards calling for Fiorina's ouster and into the hall, where he was met by a standing ovation.

Hewlett joked that he was ready to go back to his old life as an "academic and a musician", the phrase HP used in a nasty battle to undermine confidence in his financial calculations that the deal would hurt share value.

Wall Street appeared ready to give Fiorina the benefit of the doubt, as the gap between HP and Compaq shares narrowed, moving Compaq much closer to the level implied by the deal, but a final tally was not expected for weeks.

NO PREGNANT CHADS

Fiorina said the vote was not similar to the presidential poll, when the victor was unclear because of confusion over balloting.

IVS Associates, which certifies the vote, is taking the ballots back to its base in Newark, Delaware, where it will count many by hand -- and in private -- before offering both sides the chance to challenge ballots for potential flaws like postmarks, date of submission and number of shares held.

Hewlett said he was optimistic that a tally would show that shareholders had rejected the merger. "In a proxy contest this close, where stockholders are changing their votes right up until the closing of the polls, it is simply impossible to determine the outcome at this time," he said in a statement.

On Tuesday, Compaq gained 78 cents to $11.14 while HP fell 45 cents to $18.80. With HP at that level, the deal terms imply Compaq shares should trade at $11.89.

HP's stock has fallen 19 per cent since the deal was announced on September 3, while Compaq dropped 10 per cent. IBM shares rose 7 per cent in the same period. The drop in HP stock has brought the value of the deal down from $25 billion when it was first announced to $20 billion in HP stock.

SG Cowen analyst Richard Chu said the deal seemed done.

"I don't think is going to be issuing a wild, unfounded memorandum here, so I think it says the probability is very high that they do indeed have the vote and that it will be ratified over the next couple of weeks," Chu said.

In addition, before the companies can close the deal, Compaq shareholders must also approve the merger in their shareholder vote, which is scheduled for Wednesday.

THE LITTLE GUY WEIGHS IN

Shareholders, who were largely negative on the deal, peppered an upbeat Fiorina with questions about everything from layoffs to her salary during the meeting.

Picketers from Compaq's French unit protested job cuts, one placard declaring, "Carly's dream is a nightmare for workers."

David Chen, an HP retiree who worked for the company for 23 years, said his friends at the company are wary of the merger. "HP morale is very low," he said.

But major shareholders appeared to have fallen in line with Fiorina, aside from Hewlett and Packard family trusts with 18 per cent of stock, as financial investors calculated that the job cuts could help boost profits.

Roy Papp, head of fund manager L. Roy Papp & Associates, which voted about 800,000 HP shares for the merger, said he thought that employees would pull together now that the merger uncertainty is in the past.

"I think the large part of the employees' opposition is the fact that they know the merger will cause the layoffs of 15,000 people, so obviously the employees don't want to increase the chances of that slimming down," Papp said.

Fiorina and Hewlett both smoothed over their sharp differences, claiming separately that HP was not "in crisis" and that the company which helped put Silicon Valley on the map would return to the "HP way" of pulling together no matter what decision shareholders had given.

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