Shares of Compaq Computer fell 10 per cent in early trading today as investors reacted to the decision by the Packard family's charitable foundation plans to vote against Hewlett-Packard's proposed $25 billion acquisition.
The decision late Friday means that Hewlett and Packard family interests with about 18 per cent of HP shares are lined up against the deal, which will require the majority of votes cast to win approval.
More importantly, analysts believe many shareholders on the fence will be heavily influenced by the Hewlett and Packard families.
"I don't know how they dig out from underneath this," said analyst Mr Rob Enderle of the Giga Information Group. "I think for all practical purposes, the merger is dead."
Investors were not pleased by the news, sending shares of Compaq down $1.20 to $10.16 in trading on the New York Stock Exchange. Shares of HP were up 41 cents to $23.93, also on the NYSE.
Foundation chairman Ms Susan Packard Orr, a daughter of HP co-founder Mr David Packard, said in a statement Friday that "after thorough study and analysis the board has preliminarily decided, on balance, that the best interests of the foundation would be better served by Hewlett-Packard not proceeding with the proposed transaction."
HP spokeswoman Ms Rebeca Robboy said the company was disappointed but still firmly committed to the deal. She said HP would keep stressing the deal's potential benefits to the public in hopes of persuading the Hewlett and Packard heirs to change their minds.
Critics say Compaq, which is losing money, would too strongly dilute HP's profitable printing business and increase its exposure to low-margin personal computers and high-tech support.
Even some analysts and investors who see merits to the deal believe the complex integration of Compaq and HP is too risky to attempt.
AP