Hewlett Begins Last-Ditch Effort to Stop HP, Compaq Merger
Apr 24, 2002 (Daily News - Knight Ridder/Tribune Business News via COMTEX) --
Walter Hewlett began his last-ditch effort to derail the merger of
Hewlett-Packard and Compaq yesterday, presenting a Delaware court with documents
meant to show company execs knowingly fleeced investors.
It was the first day of what's expected to be a contentious three-day trial. The
outcome will decide the fate of the biggest technology merger in history.
Hewlett, who filed the lawsuit 10 days after H-P shareholders approved the
merger by a hair's-breadth, is attempting to force a new vote by proving H-P and
Compaq managers oversold the benefits of their $19.4 billion deal and used
company contracts to "entice and coerce" votes in their favor.
The first blockbuster evidence was a February or early-March diary entry by
Compaq CEO Michael Capellas. "Sobering thought," the entry read, "at our course
and speed, we will fail."
Under a four-hour grilling by Hewlett's lawyers, H-P CEO Carly Fiorina
acknowledged that different documents from last month stated post-merger profit
targets would be nearly 25 percent lower than publicly touted. She also conceded
the new numbers were never disclosed to H-P's board.
Still, she argued her actions were not improper, citing other reports the deal
remained well on track.
Changing gears to focus on the vote-buying accusation, Hewlett's lawyers accused
H-P managers of concealing a $1 million bonus to Deutsche Bank that allegedly
was used to buy 17 million last-minute votes.
The Justice Department also is investigating H-P's efforts to secure votes.
Legal experts suggested Hewlett's team began with questions surrounding H-P's
disclosure record before moving on to the alleged vote-buying because the 17
million votes in question won't tip the balance. Independent inspectors have
said H-P's victory margin was 45 million.
"A 17-million vote purchase probably wouldn't cause me to invalidate a decision
that 51 percent of the shareholders voted for," said Columbia University law
professor John Coffee. "Courts in general prefer to let elections get decided in
the market."
Still, the judge in the case, William Chandler 3d, "has a wide range of remedies
at his disposal," said Charles Elson, director of the Center for Corporate
Governance at the University of Delaware. "I think he'll look at the [disclosure
and vote-buying] claims separately. But he could also combine the two, arguing
that improperly cast votes should have been disclosed."
By Nancy Dillon
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