Fiorina's Troubling Failure to Disclose Bad Numbers
By Jim Seymour
Special to TheStreet.com
04/24/2002 10:28 AM EDT
I think Carly's in trouble.
Not necessarily because of the Hewlett-Packard (HWP:NYSE - news - commentary - research - analysis)-Compaq (CPQ:NYSE - news - commentary - research - analysis) deal -- the shareholder vote was pretty decisive. I tend to agree with what Jim Cramer said here Tuesday: "I am from the camp that says big games shouldn't be decided by penalties. Let the big boys play, tally the results and move on."
But Hewlett-Packard CEO Carly Fiorina came off badly in court Tuesday, and her actions during the late stages of the merger battle may shake both Hewlett-Packard directors and shareholders.
A 'Reality Check'
In proceedings in Delaware's Chancery Court in Wilmington Tuesday, the judge, Chancellor William Chandler III, saw and heard Fiorina's harsh, defensive and sometimes arrogant responses to what sound to me like exceedingly damaging internal H-P documents. Those documents included one memo to CFO Bob Wayman from an H-P financial analyst, who, after setting out the numbers he'd worked up on the merger, 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."
Fiorina dismissed the document, saying "There are a lot of people involved and a lot of back and forth... The value capture reports are not a full picture of what we could and should achieve... Gaps emerge and gaps are closed."
Didn't she have an obligation to disclose such pessimistic internal analyses to H-P's board of directors? To shareholders? Especially when she was touting the deal, talking about how well things were going, when this report was floating around in H-P management? Why didn't she speak up?
"It would have been irresponsible to do so," she told the court Tuesday.
Compaq's Side
It didn't get any better when Walter Hewlett's lawyers introduced pages from a notebook kept by Compaq CEO Michael Capellas, in which he wrote a couple of weeks before the vote, "at our course and speed we will fail."
Compaq PR people hurried out a release that said "Mr. Capellas was and is confident that the integration process is proceeding well and that the merger will bring substantial benefits to the shareholders of both companies." But the damage was done. And Capellas' words were unambiguous, unmistakable.
If Fiorina and Capellas had (or heard from their staffs) serious reservations about the deal, shouldn't shareholders have been told of those reservations -- to be sure, with robust counter-arguments from the two CEOs themselves -- before the vote?
Did either fail in their fiduciary duties, concealing material information that should have been publicly disclosed?
It's beginning to look bad for Fiorina, I believe.
The supposed focus of the suit, of course, is Hewlett's claim that Fiorina orchestrated a management campaign to improperly intimidate Deutsche Bank and Northern Trust into voting H-P shares they controlled for the merger. The only important evidence so far on that front is an undisputed recording of a voice-mail message left for CFO Wayman by Fiorina at the height of the campaign, splitting responsibility with him for muscling the banks.
We'll hear more on that Wednesday. And of course, H-P's lawyers haven't yet presented their case: innocent until proven guilty, etc.
But the information already on the record in Wilmington is troubling, and whether it attracts the SEC's attention or not, I think Fiorina's tenure at H-P -- even after winning the merger battle -- may now be in question.
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Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. |
