eutsche Bank was adviser to H-P in Compaq vote
WILMINGTON, Del., April 23 (Reuters) - Deutsche Bank AG's
11th-hour decision to back Hewlett-Packard Co.'s <HWP.N>
takeover of Compaq Computer Corp. <CPQ.N> stemmed from its
previously undisclosed investment banking relationship with
H-P, a lawyer contesting the merger said on Tuesday.
In Delaware business court, top executives of the computer
and printer maker, including Chairman and Chief Executive Carly
Fiorina, gathered to face off against Walter Hewlett, a
dissident board member and son of the company founder, who has
fought the merger in a proxy battle.
H-P says it won that proxy fight by a narrow margin. But
Walter Hewlett's lawsuit accuses the company of both vote
buying and failure to disclose the financial implications of
the deal.
He seeks to have the vote overturned, and experts say that
the key to him reversing the move to buy Compaq may rest with
the disclosure issue more than the vote-buying allegations.
The trial seemed to inject a new sense of unease into the
market. In mid-afternoon trading, the deal's spread -- or the
difference between where the deal values Compaq shares and
where the market currently values them -- widened to about 12
percent.
The deal's spread had narrowed significantly after
Hewlett-Packard announced last week that it won shareholder
approval by a three percent margin. Deal spreads in the five to
10 percent range are generally considered "safe" by merger
arbitragers.
The Securities and Exchange Commission and federal
prosecutors are also investigating issues surrounding the
shareholder vote.
LAWYERS LINE UP
A lawyer for Walter Hewlett, Stephen Neal, of Cooley,
Godward LLP, said H-P's Chief Financial Officer Bob Wayman
agreed to allow two Deutsche Bank employees to act as proxy
solicitors in the merger.
As part of the agreement, Neal alleged, Deutsche Bank
<DBKGn.DE> would be paid a $1 million bonus if the deal went
through.
"The evidence is going to show that sometime around the
signing ... the top executives of H-P believed that Deutsche
Bank was going to support the merger, and indeed they assumed
that a company entering into a contract would in fact vote
their shares in support of the merger," Neal said.
Neal said that on the day of the shareholder vote, March
19, H-P executives held a conference call with Deutsche Bank's
proxy solicitors and its asset management team to try to sway
Deutsche Bank's vote.
Walter Hewlett was also allowed to talk to Deutsche Bank on
that call, both sides said.
Deutsche Bank said in a statement on Tuesday it had been
retained by Hewlett-Packard in January 2002, four months after
the deal was announced, in a secondary role as a merger
adviser.
"Deutsche Asset Management's proxy committee did not
consider and was not influenced by any banking relationships
with Hewlett-Packard," the bank said in a statement.
In the current downturn in merger activity, it's not
unusual for companies to hire secondary advisers, often
splitting up the business between different investment banks.
However, Deutsche Bank's advisory relationship was never
disclosed in Security and Exchange Commission filings and never
appeared in market research firm Thomson Financial's quarterly
merger adviser rankings.
Lawyers for Hewlett-Packard contended they had not acted
improperly and said the evidence would show that.
Walter Hewlett has alleged Deutsche Bank switched its vote
because it was promised future investment banking business.
Neal said after Deutsche Bank changed its vote, Fiorina called
one of the proxy solicitors thanking him and saying that she
looked forward to doing business with him.
Hewlett-Packard attorney Steven Schatz said he would show
the company had done nothing wrong. Regarding the voicemail and
Fiorina's looking forward to doing business, he said: "That's
the way you end every conversation with every investment
banker."
Walter Hewlett's lawyers spent most of Tuesday's opening
arguments on the disclosure issue, citing internal HP and
Compaq communications to argue executives allegedly knew they
were not on track to meet stated financial targets once the
company was merged.
Those financial targets included revenues, earnings, and
cost savings from the deal.
((-- New York Newsdesk, 646 223-6000))
REUTERS
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