ISS says "yes" to HP/Compaq deal

Hewlett-Packard's plan to take over Compaq received a huge boost onTuesday when shareholder advisory firm, Institutional Shareholder Services (ISS) recommended that the deal go ahead.

ISS was enthusiastically in favour of the takeover and cited several reasons. They included that cost synergies promised by HP were achievable and that customers supported the deal.

Patrick McGurn, ISS vice president, said its analysts spent many hours with HP executives examining their plan. He said that ISS "believes in the long run it [the takeover] will maximise shareholder value."

Although ISS's recommendation is not binding it is important, because it advises institutional investors that hold in total more than 23 per cent of HP's stock.

One of HP's biggest shareholders, Barclays Global Investors, had handed voting control over to the ISS.

This was to avoid a conflict of interest, since one of Barclay's executives, Patricia Dunn, sits on the HP board. Barclays owns three per cent of HP.

But although many analysts said that if ISS recommended against the takeover, the deal was dead, it is still not certain it will go ahead.

Those against the deal, led by Walter Hewlett, son of one of the HP co-founders, control around 20 per cent of the shares.

Daniel Kunstler, an analyst with JP Morgan, said he was not surprised that ISS came out in favour of the deal. He was surprised though at how unequivocally it was in favour. "They didn't caveat you to death," he said.

Dissident director, Walter Hewlett, immediately hit out at the ISS recommendation. "They missed the point," he said.