Bank says no to HP/Compaq merger

Calling a winner at next week's Hewlett Packard (HP) shareholder vote over the proposed merger with Compaq is now harder than ever.

Yesterday Bank of America, one of the biggest HP shareholders, said it would vote against the deal because of fears that it would dilute the combined company's earnings.

"Shareholders are not best served by the merger. The mix would mean a lot of commodity PC business and there are integration challenges also," said Joe Fazzino, a company spokesman.

Bank of America joins the opposition to the deal led by dissident HP board member Walter Hewlett. In recent days other large investors, including Wells Fargo, have also said they will vote against the deal.

Although Bank of America Capital Management is the fourth largest HP shareholder, its decision affects less than half a per cent of HP's stock.

It holds 53.4 million shares, or 2.8 per cent, but the bulk of the shares are controlled by individual clients who will choose how to vote next week for themselves. Bank of America said it would vote about 6.5 million shares against the deal.

The uncertainty surrounding the vote, set for 19 March, has caused each company's existing customers to rethink their future purchases.

Around 21 per cent of votes now look to be stacked against the merger, and in a letter sent earlier this week to his employees even Compaq chief executive Michael Capellas said it would be a "close result", although he added that he was confident of support for the merger.