It's also starting to appear that Carly may not have been completely honest with the investment community about the effect of the merger on current (pre-vote) business.
By Phyllis Plitch and Donna Fuscaldo Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)Whether Walter Hewlett succeeds in his legal fight is uncertain, but observers expect the dissident board member to go to the mat trying.
The potential for drawn out litigation by the disgruntled
heir could distract HewlettPackard Co. (HWP) and Compaq Computer Corp. (CPQ) from its mission to integrate the two computer makers, say observers.
A lawsuit can "only have disabling consequences," if HP management has to shift its energy to defending itself, rather than focusing on the merger, said Alexander Horniman, a professor of business administration at Darden University of Virginia.
Throughout the protracted and costly proxy battle spearheaded by Hewlett, HP management has said its employees and customers aren't being distracted. But recent internal documents tell a different story.
In a memo recently obtained by Dow Jones Newswires, Ann Livermore, president of HP services management, said that business remains "below plan" and noted that the proxy battle was having "an impact on employee productivity and customer decisionmaking."
The Wall Street Journal reported Thursday that internal documents from HP's business customer organization show unit sales of computerrelated hardware last month were 19% below those of a year earlier.
Earlier Thursday, Hewlett filed a complaint in Delaware Chancery Court in an attempt to kill the marriage of HP and Compaq, alleging HP improperly won votes from Deutsche Asset Management, a unit of Deutsche Bank AG (DB), minutes before the voting polls closed last Tuesday.
According to the complaint, Deutsche Bank feared that a vote against the deal would "destroy Deutsche Bank's ongoing, and desired future, business dealings with HP."
Hewlett also charged the company made false and misleading statements about its progress in integrating with Compaq weeks before the vote.
While Hewlett says the vote is too close to call, HP claimed victory last week by a "slim but sufficient" margin. An official tally isn't expected for several weeks. Word from Hewlett's camp is that the outcome hinges on less than 1% of the vote.
In a prepared statement Thursday, HP called Hewlett's suit "completely without merit" and said the company plans to "vigorously" defend itself.
Lawrence A. Hamermesh, professor at Widener Law School in Delaware said Delaware courts are "inherently skeptical" about allegations of false and misleading claims by management in such suits. "It depends on how smoking the gun is," he said. "They win every once in a while."
As to Hewlett's allegations of vote buying, Hamermesh said cases are few and far between, making it difficult to predict how the case will turn out.
But there is precedent in corporate law supporting the notion that directors or executives can't interfere with the exchange of votes through a quid pro quo.
Nevertheless, the judge would "need to know a whole lot more about the nature of negotiations and discussions between the bank and HP managers," said Hamermesh.
Even if Hewlett doesn't prevail, the lawsuit will, in effect, throw the merger into a "state of suspended animation," said Patrick McGuckin, an analyst at Gartner Inc. (IT).
"If the lawsuit lingers on for more than a week or two after the vote is certified, then they've (HP and Compaq) got a situation where the worstcase scenario is they can't move forward with the merger and they can't move back and operate as separate companies," he said. All the while, competitors such as International Business Machines Corp. (IBM), Sun Microsystems Inc. (SUNW) and Dell Computer Corp. (DELL) could add to their woes by picking off customers, he said.
In the prepared statement, HP also said Thursday that it is continuing its progress with the integration efforts with Compaq.
Shares of HP were recently trading up 1.3% at $18 on volume of 16.6 million compared with average daily volume of 9.6 million. Compaq shares are down 3.1% to $10.27 on volume of 21.2 million compared with average daily volume of 17.3 million. By Phyllis Plitch, Dow Jones Newswires, 2019382357 By Donna Fuscaldo, Dow Jones Newswires, 2019385253
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