WILMINGTON, Del., Apr 24, 2002 (AP Online via COMTEX) -- It seemed fitting that Carly Fiorina led off the trial over Hewlett-Packard Co.'s $19 billion purchase of Compaq Computer Corp. The HP chief has put her credibility and career on the line and fought tenaciously for the deal.
At times stubborn and meticulous, Fiorina spent more than four hours on the witness stand Tuesday denying claims by dissident HP director Walter Hewlett that she deceived shareholders about the deal's financial prospects and bullied big investors to approve it.
Fiorina had to fend off allegations made in opening arguments by Hewlett lawyer Stephen Neal, who said company memos and a personal diary showed that HP executives knew the Compaq deal was likely to work out far worse than what the companies were publicly touting.
Neal said HP really knew the Compaq deal would likely reduce the combined company's earnings per share by as much as 10 percent rather than boost them 12 or 13 percent, as HP claimed in Securities and Exchange Commission filings.
"The attached is a frightening reality check," said one e-mail that was sent to HP's chief financial officer from a staff member and read by Neal. "I see little realistic upside and I am not alone. I sincerely hope we all start acknowledging the realities soon."
Neal also cited a Feb. 14 memo in which Compaq chief financial officer Jeff Clarke wrote of some merger-integration efforts he had just reviewed: "We have a mile to go on this. Second half of 2002 is a pure disaster in terms of (earnings per share). Need more actions."
The attorney also revealed that in late February or early March, Compaq CEO Michael Capellas wrote of a "sobering thought" in his personal journal. Noting that HP and Compaq were about to embark on a historic episode in business history, Capellas wrote, "At our course and speed we will fail," according to Neal.
A Compaq statement released Tuesday said the entry was taken out of context and refers to a comment made at a meeting on one issue, not the entire HP deal.
A preliminary tally released last week found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6 percent came out against. That gives HP a lead of 45 million shares.
Hewlett sued HP in Delaware Chancery Court because the state regulates proxy fights and other governance issues that concern companies incorporated in the state, such as HP and Compaq. Hewlett is asking Chancellor William Chandler III to overturn the election and order a new vote.
If Chandler agrees with HP's defense that it did nothing improper, HP and Compaq are prepared to begin officially working together May 7.
Under questioning from Neal and then an HP attorney, Fiorina challenged the claim that HP misled investors, saying Neal had taken the charts and memos out of context and overlooked other reports showing the deal well on track. Fiorina said HP made conservative estimates so as to "underpromise and over-deliver."
In fact, she said, she not only stands by the projection that the deal will generate $2.5 billion in cost savings in 2004 but now would be "very disappointed if we don't do better than that."
Fiorina added that the job cuts resulting from the merger likely will be around 13,000 instead of the 15,000 HP previously anticipated. Hewlett had accused HP of hiding the fact that 24,000 layoffs might be necessary.
Fiorina also denied a key element of Hewlett's case: that she or other top HP officials threatened to withhold lucrative business from Deutsche Bank if Deutsche's investment arm did not vote 17 million shares for the deal at the last minute.
In addition to a $4 billion line of credit that Deutsche Bank helped arrange for HP just days before the shareholder vote, Tuesday's hearing revealed that the bank also agreed during the proxy fight to help the company with "market intelligence." In fact, Deutsche Bank was promised a $1 million bonus if the deal was approved. Fiorina said chief financial officer Robert Wayman struck the deal without informing her or the board of its details.
Even so, she said, there was nothing improper about the arrangement and added that it played no role in the Deutsche investment division's last-minute vote switch.
She added that her now-infamous suggestion to Wayman that they "do something extraordinary for" Deutsche Bank and another investor - part of a voice mail leaked to a newspaper reporter - was an innocent reference to giving Deutsche money managers an in-depth, in-person presentation to pitch the deal.
Neal also tried to make hay out of another Fiorina voice mail. A few days after the March 19 shareholder vote, Neal said, Fiorina left a message for Deutsche Bank vice chairman Benjamin Griswold thanking him for "going to bat for us" and saying she looked forward to doing business together in the future.
Fiorina said she was thankful for Griswold's efforts to arrange a last-minute conference call between her, Wayman and Deutsche money managers, and called the signoff innocuous.
Fiorina was due to resume testifying Wednesday morning.
In trading Tuesday on the New York Stock Exchange, shares of Palo Alto, Calif.-based HP fell 23 cents to close at $18.04. Shares of Houston-based Compaq lost 53 cents, or 5 percent, to $10.20.
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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 |
