HP-Compaq tie-up receives another blow

Investors lose the faith...

Shares in Compaq fell over 14 per cent yesterday as investors and analysts digested the news of the Packard Foundation's refusal to back the merger.

Most analysts agree the decision has dealt the deal a potentially fatal blow, with the Foundation controlling over 10 per cent of HP's stock and investor sentiment moving quickly against the takeover.

Compaq's shares were the third most traded on the New York Stock Exchange yesterday and by close were 14.3 per cent down.

Most observers agree that Compaq has the most to lose if the deal fails. However, a more immediate problem is uncertainty about the deal which could lead customers to look elsewhere.

Shares in HP also fell yesterday, closing down 2.2 per cent. The falls mean HP's purchase of Compaq is worth just $16.5bn, rather than the $25bn value when the deal was announced.

On Friday, the Packard Foundation - trustees of the heirs of HP's co-founder - announced it will vote against the deal.

The decision follows similar ones from the Hewlett Foundation and other members of the Packard family.

This means up to 20 per cent of HP's stock is now already stacked against the deal.

The deal has been widely criticised for failing to deliver benefits to either company. Both companies have large and largely unprofitable PC businesses and they have been unable to convince analysts the deal can create a more lucrative, services led organisation.