Hewlett-Packard set March 19th this week as the date for shareholders to vote on its controversial $23 billion (€26.5 billion) proposal to merge with rival Compaq Computer.

Setting the date for the shareholder meeting brings to a close the long phoney war that has raged since early November, when Walter Hewlett, dissident board member and son of a Hewlett-Packard founder, announced he would oppose the transaction.

Observers expect the battle between Hewlett-Packard executives and the Hewlett camp to heat up during the final weeks. Both sides have claimed in recent days that they are gaining crucial support among institutional shareholders holding about 57 per cent of Hewlett-Packard shares.

Whether Hewlett-Packard succeeds in winning investor approval will likely depend on the recommendation issued by Institutional Shareholder Services, the small proxy adviser firm. Analysts have said the deal is unlikely to survive if ISS opposes the merger. The advisory group is expected to issue its report a few weeks before the vote.

Compaq said its shareholders, widely seen to be receptive to the deal, are scheduled to vote on the transaction on March 20th, one day after Hewlett-Packard shareholders. Only shareholders of Hewlett-Packard or Compaq stock at market close on January 28th will be eligible to vote.

Separately, Mr Hewlett reiterated his opposition to the merger and announced his camp had begun mailing definitive proxy materials to shareholders urging them to vote against the deal.

The companies last week received European clearance, sparing them a potentially damaging four-month extended review process. A conclusion of the US anti-trust review by the Federal Trade Commission is expected shortly. The dates for the shareholder votes were confirmed in Hewlett-Packard's final proxy statement filed with the US Securities and Exchange Commission on Tuesday.

Prospects for the merger being approved have increased in recent days, as Hewlett-Packard announced it would top earnings forecasts in the latest quarter, while Compaq last month beat expectations for its latest reporting period.

A handful of large institutions have indicated their support for the deal, lending some credence to Hewlett-Packard's claim that it has enough backing to win shareholder approval for the merger.

But Hewlett-Packard must overcome opposition from Mr Hewlett and other company heirs who have effectively formed a voting block, with 18 per cent of shares aligned against the deal. The company has also fought hard to win support on Wall Street, where investors and analysts worried that the merger would not work.

The spread between the implied value of Hewlett-Packard's all-stock offer and the level of Compaq's shares still indicates considerable scepticism in the financial markets.

Based on Tuesday's mid-day prices, Hewlett-Packard's offer is worth $13.56 a share, compared to a Compaq closing price of $11.97. Given that the companies hope to close the deal immediately after the shareholder vote, the gap is equivalent to an annualised return of more than 100 per cent.

Ms Carly Fiorina, Hewlett-Packard's chief executive, also said the company saw an economic recovery in the second half of 2002, although the firm's forecast suggested that any rebound would be muted at first.

"Economic conditions around the world continue to be challenging but consumer technology spending is clearly showing some strength," Ms Fiorina said.

Hewlett-Packard said that "uptick in consumer demand" for PCs and printing equipment would enable the group to report a moderate increase in revenues over the fourth quarter.

Hewlett-Packard is scheduled to report first-quarter results after the market closes on February 13th.