PALO ALTO, Calif. - The defined contribution plans of Hewlett-Packard Co. and Compaq Corp. were among the investors that took paper losses in the days after the announcement that H-P was buying Compaq - to the tune of an estimated $222 million.
Company stock, which comprises 31% of Hewlett-Packard's 401(k) plan assets and 62% of Compaq's defined contribution assets, according to data from Pensions & Investments and Money Market Directory, respectively. But the stock prices of both companies had fallen considerably this year even before the announcement that H-P would buy Compaq.
The company stock holdings that made up $1.3 billion of Palo Alto-based Hewlett-Packard's $4.3 billion in 401(k) assets as of Sept. 30 were worth just $683 million by Aug. 31, the last day of trading before the merger was announced, and $551 million by the market's close on Sept. 10.
Houston-based Compaq had a similar story with the 62% of its $2.4 billion in defined contribution assets allocated to company stock as of Dec. 31, 1999, according to MMD, the most recent data available. That holding, which would have been worth $1.5 billion at year-end 1999, would have been worth $658 million by Aug. 31 and $568 million by Sept. 10.
$87 billion company
The merger would create an $87 billion technology hardware and software company, according to a Sept. 4 press release issued jointly by the two companies. The new company would employ 145,000 people in 160 countries. The boards of directors at H-P and Compaq have approved the deal and are now seeking regulatory and shareholder approval.
Officials at Compaq and Hewlett-Packard declined to comment on their retirement plans.
H-P's total retirement assets were $10.9 billion as of Sept. 30, according to the company, including $6.6 billion in hybrid defined benefit plan assets. At the time, the Hewlett-Packard plan ranked as the 95th largest retirement plan in the United States.
With an estimated $4.9 billion in retirement assets, Compaq ranked No. 202. In addition to the defined contribution assets, Compaq manages the frozen defined benefit plan of Digital Equipment Corp., which totaled $2.4 billion as of Dec. 31, 1999.
The two companies' retirement assets were worth an estimated total of $12.2 billion as of Aug. 31, a size that would have ranked the combined fund at 87th in terms of U.S. pension assets in P&I's survey of the biggest plan sponsors.
As of Sept. 30, Hewlett-Packard employed 17 money management firms to handle assets in both plans.
Compaq's managers included AEW Capital Management LP, Barclays Global Investors NA, Capital Guardian Trust Co., Dodge & Cox, Evergreen Institutional Asset Management, Franklin Portfolio Associates LLC, Jacobs Levy Equity Management Inc., Mellon Trust, Pacific Investment Management Co., and State Street Global Advisors, according to the 2001 Money Market Directory. Richards & Tierney is listed as consultant.
As of Sept. 30, 2000, Hewlett-Packard also employed Capital Guardian and PIMCO as managers.
Robert DiMeo, managing director of Chicago-based DiMeo Schneider & Associates, a consulting firm, said the poor performance of Compaq and Hewlett-Packard stock should not be a concern in combining the retirement plans. "You have two stocks that are underperforming," he said, adding a combined company might see a turnaround in stock value. If it does not, the company will have to consider it as an investment issue, he said.