6 March 2002 Institutional Shareholder Services (ISS), an investment advisory company whose clients own a hefty chunk of shares in Hewlett-Packard (HP), has advised those shareholders to vote in favour of the proposed merger between HP and Compaq.

The recommendation represents a big boost for HP CEO Carly Fiorina following exhaustive efforts to win over investors in favour of the merger. In recent weeks, Fiorina has received a number of setbacks from major investors, most notably from board member and HP heir Walter Hewlett.

The advice from ISS could have a strong influence on the outcome, as its clients own around 23% of the outstanding shares in the company, according to HP estimates. The Hewlett and Packard families and their related foundations own around 18% of shares. In total, investors representing about 21% of shares in the company have publicly spoken out in opposition to the deal.

“At the end of the day, we were comfortable that HP management had taken steps to ensure the long-term strategic value from this merger,” said ISS analyst Ram Kumar in an interview. ISS also criticised the feasibility of a number of Walter Hewlett’s plans for the company, including his intention to spin off HP’s profitable printer and imaging unit.

Despite this hint at a favourable outcome for Fiorina, the final vote on the merger could still swing against HP. One fund manager, for example, said he had read the ISS report but would still advise his clients to vote against the merger.

Predictably, Walter Hewlett condemned ISS’ advice. “We believe ISS has missed the point and we believe the HP-Compaq merger will destroy stockholder value,” he said in a statement. HP shareholders will vote on 19 March 2002, a day before Compaq shareholders.