H-P may face difficulty dismissing suit
Sunday session set in Delaware courtroom
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 2:40 PM ET April 5, 2002
WILMINGTON, Del. (CBS.MW) -- Hewlett-Packard's lawyers may find it hard to get a lawsuit thrown out on Sunday that has the potential to block the company's acquisition of Compaq Computer, according to several legal experts.
The suit, filed last week by dissident board member Walter Hewlett on behalf of his family trust, seeks to either invalidate all shareholder votes backing the merger of H-P (HWP: news, chart, profile) and Compaq (CPQ: news, chart, profile) -- what would be the technology industry's largest-ever deal -- or to hold a new vote that would likely delay the combination.
The complaint before Delaware Chancery Court claims that H-P postponed its shareholder meeting on March 19 by half an hour in order to win last-minute votes from Deutsche Asset Management, which may ultimately have swung the contest in H-P's favor.
Hewlett alleges that H-P led Deutsche Asset Management to believe future business with parent Deutsche Bank (DB: news, chart, profile) would be jeopardized if shareholder votes were not switched in favor of the deal.
H-P filed a motion late Monday that Hewlett's claims are baseless and that even if they were true, Delaware law doesn't provide any basis for legal relief.
It remains to be seen what evidence Hewlett will present during the Sunday hearing. But all Hewlett may have to do to get the case heard is convince the judge that H-P's alleged financial coercion constituted a conflict of interest that the company needed to make public.
"If they can present evidence that there was a payoff -- and they only have to allege it right now -- Hewlett's lawyers could say there was an important lack of disclosure," said Dennis Block, head of corporate litigation for Cadwalader, Wickersham & Taft in New York.
"Vote-buying may or may not be illegal, but you have to make full disclosure of facts when you are soliciting proxies."
In a motion to dismiss, the judge has to assume Hewlett's claims are truthful, Block says. So on Sunday, the onus will be on H-P's lawyers to argue that even if all Hewlett's facts are straight, his complaint is still baseless.
Hewlett's suit may not ultimately succeed in blocking the company's merger, but it is likely to be heard, said Mark Davidson, senior counsel with the law firm Proskauer Rose in New York.
"I don't know if they'll be able to throw it out. Typically, when you get into issues of whether appropriate disclosures were not made, you have to argue that on the merits," he said.
Hewlett's lawyers will still be challenged to provide sufficient evidence for the suit to proceed, said Charles Elson, professor of corporate governance at the University of Delaware. He says it's too hard to say whether the suit will be thrown out.
But he said Judge William B. Chandler III will be focused on one important fact -- namely, "something happened between the time when the (Deutsche Asset Management) proxy committee recommended against the merger and when the vote was cast."
If the suit is not dismissed, a trial date is set for April 23. Three days are set aside for the trial.
H-P shares traded off 3 cents to $17.22 on Friday afternoon, while Compaq gained 22 cents to $9.80.
Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com. |
