2 Funds Oppose HP-Compaq Merger

Pension funds for California teachers and Ohio public workers said Thursday that they planned to vote against Hewlett-Packard Co.’s proposal to buy Compaq Computer Corp. for $21 billion, saying the merger would threaten profitability.

The California State Teachers’ Retirement System will vote its 0.29% stake against the transaction, and the Public Employees Retirement System of Ohio will vote no with its 0.21% stake.

Later in the day, Banc One Investment Advisors said it would vote its 0.26% stake for the deal, and the Ohio teachers pension fund pledged to vote yes with its 0.18%, HP spokeswoman Rebeca Robboy told Associated Press.

Hewlett-Packard investors are declaring their intentions before Tuesday’s vote on what would be the biggest computer industry combination.

Hewlett-Packard Chief Executive Carly Fiorina says the bigger company would boost profit by selling more services and more-profitable server computers.

Director Walter Hewlett is waging a proxy fight to defeat the proposal, saying that the company his father co-founded would fare better alone.

“The integration risk seems too great to be overcome in a transaction this large and complex,” the California organization, the third-largest U.S. pension fund, said in a statement. The combination “would dilute Hewlett-Packard’s position in its profitable printer and imaging unit,” said the California teachers fund, which has assets totaling $100 billion.

Investors holding 21% of the company’s stock have said they oppose the transaction publicly, and 8.3% favor it.

On the New York Stock Exchange, Hewlett-Packard shares fell 71 cents to $19.40 and Compaq fell 30 cents to $10.70. Houston-based Compaq’s stock trades at 13% less than Hewlett-Packard’s offer price.

The California teachers fund, based in Sacramento, also plans to oppose the merger with its 0.3% stake in Compaq in a separate vote of that company’s investors.

The Ohio pension fund, with assets of $54 billion, said that the acquisition would dilute the printing business by increasing sales of low-profit personal computers.

The Columbus, Ohio-based fund owns a 0.2% stake of Compaq.