WILMINGTON, Del., Apr 24, 2002 (AP Online via COMTEX) -- Hewlett-Packard Co. chief Carly Fiorina became agitated on the witness stand Wednesday under questioning about company documents that allegedly show the purchase of Compaq Computer Corp. would fall short of its financial goals.
As the second day of the trial began, Stephen Neal, a lawyer for dissident director Walter Hewlett who is suing to stop the proposed $19 billion deal, asked Fiorina how the teams that were planning the merger arrived at their financial estimates. Charts introduced as evidence Tuesday showed growing gaps between the latest revenue and earnings projections and the figures HP had promised to investors.
Sighing audibly several times, Fiorina said Neal was drawing the wrong conclusions because he was looking at selected snapshots and not "the whole movie."
She said the gaps grew intentionally because the business units that contributed to these ongoing assessments deliberately set lower targets so they could overshoot them later.
At one point during the tense exchange, Neal said somewhat curtly, "Let me ask the questions."
Fiorina responded, "Sir, you are accusing the CEO of a publicly traded company of lying."
Fiorina had been stubborn but calm during more than four hours of testimony at the trial's opening Tuesday.
Hewlett, who also accuses company executives of bullying big investors to approve the deal, was expected to take the stand later Wednesday or Thursday.
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.
In testimony Tuesday, 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 in court by Neal. "I see little realistic upside and I am not alone. I sincerely hope we all start acknowledging the realities soon."
Neal displayed the memo on a large board so only the judge could see it - part of an agreement to protect sensitive internal HP information.
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.
Fiorina said Neal had 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 HP had hid the fact that 24,000 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.
In trading Wednesday on the New York Stock Exchange, shares of Palo Alto, Calif.-based HP fell 39 cents to $17.65. Shares of Houston-based Compaq rose 23 cents to $10.43.
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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 |
