Packard Foundation To Vote Against HP, Compaq Merger

The proposed $25.59 billion merger of Hewlett-Packard Co. and Compaq Computer Corp. was dealt a
potentially losing hand Friday when the David and Lucile Packard Foundation, HP’s largest shareholder, said it planned to vote its
stake against the acquisition.

“With this final trust voting against supporting the merger, I think it’s very unlikely that the merger will be done,” said Andy Efstathiou, analyst with The Yankee Group.

The foundation, chaired by Susan Packard Orr, daughter of HP co-founder David Packard, controls 10.4 percent of HP’s stock. The
decision brings the foundation in line with the stances of the William and Flora Hewlett Foundation and the William R. Hewlett
Revocable Trust, both of which came out against HP’s acquisition of Compaq last month.

Together, the three groups control about 18 percent of HP’s outstanding shares.

“I am pleased that after completing its analysis, The Packard Foundation has preliminarily decided to vote its shares against the
proposed merger of Hewlett-Packard and Compaq,” said Walter B. Hewlett, an HP director and chairman of The William and Flora Hewlett
Foundation and trustee of the William R. Hewlett Revocable Trust. “The Foundation’s decision supports the conclusion reached by the
independent stock committee of The William and Flora Hewlett Foundation and fiduciaries of The William R. Hewlett Revocable Trust —
Hewlett-Packard can create greater value for stockholders as a stand alone company than as a company combined with Compaq.”

Hewlett added, “I am confident that partnering with Compaq will not give Hewlett-Packard what it needs most to create additional
stockholder value — expansion of its printer and higher-end server and services businesses. The combination would dramatically
increase the company’s exposure to the unattractive PC business, while reducing stockholders’ interest in the profitable printing
and imaging business by over one-third.”

Hewlett said a significant number of other stockholders feel the same way, and vowed to solicit proxies against the transaction if
HP and Compaq bring the acquisition to a stockholder vote.

However, both HP and Compaq seemed determined to push the matter through. In a joint statement Friday, the two companies said: “We
are disappointed by the Packard Foundation’s preliminary decision. Nevertheless, our responsibility to shareowners, customers and
employees requires that we maintain a pragmatic view of the business and a focus on the future. Our firm commitment to this merger
stems from our conviction that it will deliver the industry leadership and earnings growth our shareowners can expect and our
employees deserve.

“Over the coming weeks and months, we intend to continue communicating its merits to our broad shareowner base.”

That will be difficult, as history has demonstrated that HP shareholders tend to vote with the founders’ families. Analysts have
estimated that HP management will need the support of more than 60 percent of the company’s institutional shareholders — which hold
57 percent of the company’s outstanding stock — to pull off the deal.

Efstathiou noted that HP has much to gain from strategic acquisitions, but said that shareholders may have been shaken by the size of the Compaq acquisition because of the risk involved. The risk could be lessened through a series of smaller purchases aimed at achieving the same ends HP is pursuing through a single purchase.

Even if management pushes through a vote on the Compaq acquisition, a possibility that carries the specter of a $675 million penalty if shareholders vote the deal down, Efstathiou said the companies are far behind in the merger planning process.

“They would still need regulatory approval in many different areas,” he said. “My understanding is that they haven’t even officially notified the European regulators that they intend to go forward. I certainly don’t think they’ll be able to make any of the timetables they’ve currently set.”

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