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HP/COMPAQ: Despite favourable vote tally, hurdles remain

HP/COMPAQ: Despite favourable vote tally, hurdles remain

Walter Hewlett's determination to legally contest Hewlett-Packard's merger with Compaq Computer despite an initial vote tally favouring the union needlessly complicates an already complicated situation, analysts said.

HP last week announced that shareholders had approved the merger by a margin of about 45 million shares out of 1.6 billion. The company cited preliminary voting results tabulated by Newark, Delaware-based independent vote-counting firm IVS Associates.

In releasing the results, embattled HP CEO Carly Fiorina reiterated her plans to go ahead with the merger without delay. "We are eager to put this difficult period behind us and look forward to doing business as the new HP," Fiorina said.

But Hewlett, who filed suit against HP in March alleging that the company had coerced Frankfurt-based Deutsche Bank AG to switch 17 million votes in favour of the merger, insisted he would continue with the litigation. "These are preliminary results, and both sides will have the opportunity to examine and challenge the proxy tabulation prior to final certification," he said in a statement.

But even if Hewlett were able to convince the Delaware Chancery Court of discarding the contested votes, HP would still have enough of a margin to approve the merger, said Charles King, an analyst at Sageza Group in Mountain View, California. "To understand what he is up to now would [require] a Ouija board," King said.

By continuing to challenge the merger, Hewlett is only disrupting the integration process, King said. "This is a tough merger under any circumstances. But if [HP's management] is subject to constant legal threats, it's only going to get tougher," he said.

"This has gone on for far too long" and could soon start hurting both HP and Compaq in the market, warned Richard Partridge, an analyst at New York-based D.H. Brown Associates.

So far, "HP hasn't lost a lot, because the economy has been slow and there hasn't been a lot of [purchasing]," Partridge said. But that could change as the market recovers, he said. "They have to execute on their promise of hitting the ramp running," he said.

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