UPDATE 1-Walter Hewlett sees Compaq deal being defeated
December 13, 2001 6:26:00 PM ET
(Recasts, adds Compaq response, Hewlett employee poll)
By Caroline Humer
NEW YORK, Dec 13 (Reuters) - Hewlett-Packard Co. (HWP) and Compaq Computer Corp. (CPQ) fought back on Thursday to defend their $22.8 billion merger plan against strident opposition led by Walter Hewlett, a son of one of the founders.
The rift between Hewlett-Packard management and its founder's heirs widened as a member of the computer and printer maker's board of directors resigned from a foundation led by Walter Hewlett -- upset that the conflict would trigger what he called an ill-advised proxy fight.
The resignation by Richard Hackborn, a Hewlett-Packard director and staunch supporter of the deal, from the Hewlett Foundation came after Walter Hewlett sent a letter to the boards of both companies that sharply criticized the deal.
In his letter, Walter Hewlett, also a Hewlett-Packard board member, said the merger would likely be rejected if there were a shareholder vote. The letter came one month after he first spoke out against the deal.
There is "enormous unhappiness" about the deal and a "very high probability" that it would be defeated if it came to a stockholder vote, he said in a Dec. 12 letter to the boards of Hewlett-Packard and Compaq.
"The handwriting is on the wall and it is clear. I urge that we serve the best interests of all our shareholders by a speedy, mutual unwinding of this transaction," he wrote. The letter was filed with the Securities and Exchange Commission on Thursday.
Compaq responded in its own letter to Walter Hewlett on Thursday, saying the board of directors was confident the deal would be approved by shareholders of both companies.
"We are confident that over the coming months, the shareholders of both companies will recognize the value of the merger and give their approval," it said.
Hewlett-Packard shares closed down 74 cents, or more than 3 percent, at $21.07, while Compaq lost 40 cents, or about 4 percent, to end at $9.39, both on the New York Stock Exchange on a day when the American Stock Exchange Hardware Index lost 5 percent.
The merger of Hewlett-Packard and Compaq has been under pressure almost since it was announced on Sept. 4.
Critics of the deal -- including Walter Hewlett, investors, and some Wall Street analysts -- have said it would dilute Hewlett-Packard's printing business by creating a larger computer division.
FOUNDERS' FAMILIES FIGHT DEAL
Hackborn quit the Hewlett-Packard board and called Walter Hewlett's sentiments "ill-advised."
"Sadly, Walter Hewlett's decision to wage an ill-advised proxy fight opposing HP's merger with Compaq deeply conflicts with my and the HP Board's belief that the merger represents the very best way to deliver the value and growth HP's shareowners, customers and employees deserve," Hackborn said in a statement.
In November, when Hewlett first announced his opposition to the deal, Hackborn -- credited with pioneering the company's very profitable LaserJet business -- taped a message of support for the deal and sent it to shareholders.
"The two sides are digging in, does it change anything? I don't think so," said Dan Niles, an analyst at Lehman Brothers.
No date has yet been set for a vote by shareholders, but Merrill Lynch analyst Steven Fortuna said in a research note on Thursday that he expected the vote to take place in early March. The companies also are waiting for regulatory approval in the United States and Europe.
The conflict creates an uncertain atmosphere for both employees and customers, analysts said.
"Clearly it would be much better for all concerned if we could have a clear delineation one way or another," said George Elling, an analyst at Deutsche Banc Alex. Brown who favors the deal.
An internal employee survey obtained by Reuters of Hewlett-Packard employees' support for the merger found that employees feelings about the deal wavered in November but have come back a bit this month.
About 76 percent of 1,300 employees surveyed on Dec. 10 said they were supportive of the deal -- down from 84 percent employee support the company had enjoyed in September when the deal was first announced.
In November -- when Walter Hewlett first opposed the deal -- support was at a low, with 55 percent of 1,170 Hewlett workers saying they were for the deal, and 45 percent saying they were against it.
A Hewlett-Packard spokeswoman said that Walter Hewlett's actions have created uncertainty and concern among both employees and customers.
"Our survey data suggest that before Walter's opposition to the deal was announced, these constituencies were quite supportive of the merger and even after his actions were announced, these constituents are still supportive of the merger," she said.
Walter Hewlett's comments came after the Packard family trust, HP's largest shareholder with a 10.4 percent stake, said it will vote against the deal, uniting the families of HP's founders and creating a voting block of 18 percent.
The Hewlett family, which owns a 5 percent stake in Hewlett-Packard, said last month it would vote against the merger, dealing the first major blow to Fiorina's vision of a computer, printer and services powerhouse to rival International Business Machines Corp. (IBM)
In addition, she noted that 82 percent of shareholders have not indicated their preliminary vote decisions, and that the company intends to bring the merger to a vote. REUTERS
© 2001 Reuters
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