Hewlett Attorneys Claim Deal Deception
WILMINGTON, Del., Apr 23, 2002 (AP Online via COMTEX) -- Lawyers for dissident
Hewlett-Packard Co. shareholder Walter Hewlett cited internal company memos and
personal documents in court Tuesday as evidence that executives deceived
investors about the financial prospects of HP's proposed $19 billion purchase of
rival Compaq Computer Corp.
In opening statements in Hewlett's attempt to overturn a shareholder vote
approving the deal, Hewlett lawyer Stephen Neal claimed HP executives knew as
late as a few days before shareholders were set to vote on the deal last month
that internal projections showed the financial benefits would fall well short of
what HP publicly touted.
A personal journal entry Compaq CEO Michael Capellas made in late February or
early March was headed "sobering thought" and said "at our course and speed we
will fail."
At the same time, a select group of HP and Compaq executives held regular
meetings on the merger's progression and consulted a chart that showed the
widening gap between current projected financial benefits of the merger and what
was promised when the merger was initially proposed to shareholders in an SEC
filing. The series of charts was presented to the judge Tuesday, but was kept
from view of the courtroom to protect company secrets.
Neal also presented an e-mail from a member of HP chief financial officer Bob
Wayman's staff who had conducted one internal study on the financials. The
message to Wayman said "The attached is a frightening reality check. ... I see
little realistic upside and I am not alone. I sincerely hope we all start
acknowledging the realities soon."
Neal said HP's internal projections showed the deal would likely reduce the
combined company's earnings per share by as much as 25 percent rather than boost
them, at least in the near term. He also suggested that HP suddenly found a way
to make the numbers work once the judge ruled to let Hewlett's suit go to trial.
HP chairwoman and chief executive Carly Fiorina took the stand first, insisting
that the company's original projections were based on the best estimates at the
time and that it was known that they were subject to change.
Speaking in a voice so soft, she was asked to speak up several times, Fiorina
testified that she did not disclose the updated projections to shareholders
because "it would be irresponsible to do so."
Fiorina testified for 90 minutes before the lunch break. Her testimony was to
continue when court resumed.
The official certification of HP's shareholder vote on the deal, first announced
seven months ago, is expected within days, but Hewlett is asking a Delaware
Chancery Court judge to invalidate those results.
Hewlett first fought the deal in a public relations battle with HP on the
grounds that buying Compaq was too risky and would bog HP down in the weak
personal-computer market at the expense of its profitable printing division.
In his lawsuit, he contends HP won its slim majority in the March 19 shareholder
vote by threatening to take business away from at least one big investor,
Deutsche Bank, in addition to hiding unflattering information about HP and
Compaq's ability to carry out the merger.
Neal claimed Deutsche Bank was promised $1 million bonus if deal was approved.
That payment was approved by HP chief financial officer Bob Wayman without
Fiorina's knowledge, Neal told the court.
Fiorina personally thanked head of Deutsche Bank for "going to bat for us" with
the bank's proxy committee, Neal said, citing a voice-mail, which Fiorina ended
by saying, "I look forward to doing business with you" in the future.
Hewlett-Packard has denied wrongdoing, and Deutsche Asset Management has said it
merely voted the shares it controlled in the best interests of its investment
clients.
HP attorney Steven Schatz said the signoff was typical for any conversation with
an investment bank and said there are other memos showing the merger plan was
ahead of schedule.
"The shareholders vote should be honored," Schatz said. "Management integrity
has been impugned on the flimsiest of bases."
In a scene normally reserved for popular sporting events and concerts, about 100
people - mostly attorneys, investors and journalists - lined up outside the
courthouse. Some had paid others to stand in line overnight to ensure they would
get inside the courtroom.
"This is a such high profile case, everybody's afraid they're not going to get a
seat for the trial," said Rob Campbell, 27, an employee at a local courier
service who was paid $20 an hour by a law firm to line up outside the courthouse
at 3 a.m.
The trial, being heard by one of the court's expert business judges and not a
jury, is expected to last three days. The Delaware Chancery Court in Wilmington,
which has jurisdiction over the governance of companies that are incorporated in
the state, including HP.
A preliminary tally released last week by an independent proxy certifying firm
found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6
percent came out against. With more than 1.6 billion shares voted, HP beat
Hewlett by 45 million shares - a margin of less than 3 percent.
Hewlett hopes Chancellor William Chandler III negates the vote either by voiding
certain investors' shares or by determining that HP corrupted the entire process
by buying votes.
Hewlett believes Deutsche Asset Management originally voted 25 million HP shares
against the deal but switched 17 million just before the shareholder meeting,
which came days after Deutsche Bank helped arrange a $4 billion credit facility
for HP.
In trading Tuesday on the New York Stock Exchange, shares of Palo Alto,
Calif.-based HP fell 35 cents to $17.92. Shares of Houston-based Compaq lost 73
cents, 6.8 percent, to $10.
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On the Net:
hp.com
compaq.com
Opposition site: votenohpcompaq.com
By BRIAN BERGSTEIN
AP Business Writer
Copyright 2002 Associated Press, All rights reserved |
