UPDATE 2-HP's Fiorina denies misleading investors on targets
(Adds Walter Hewlett testimony, stock moves, details)
By Caroline Humer
WILMINGTON, Delaware, April 24 (Reuters) - Hewlett-Packard
Co. <HWP.N> Chief Executive Carly Fiorina on Wednesday denied
misleading investors about financial forecasts for its planned
merger with Compaq Computer Corp. <CPQ.N>, saying a second,
lower set of internal numbers did not need to be disclosed.
Fiorina, who grew exasperated at some points during seven
hours over two days on the stand, appeared increasingly
confident on Wednesday.
"Sir, you are accusing the CEO of a publicly traded company
of a lie," Fiorina retorted after repeatedly being pressed to
defend her numbers by Stephen Neal, attorney for merger
opponent and HP founding family scion Walter Hewlett.
The $18 billion merger, the largest in technology industry
history, would succeed and meet her targets, she said. "We
could blow this in many ways. Our plan is not to."
The Palo Alto, California computer and printer maker faces
a three-day trial after which Chancellor William Chandler, who
presides over the Delaware court, must decide whether to throw
out the results of a March 19 merger vote the company says it
won and which Walter Hewlett says are tainted.
Shares of the two companies reflected growing confidence in
the merger, which Hewlett has contested for five months. HP
shares lost 4.6 percent to $17.21 and Compaq shares gained 1.57
percent to $10.36, closer to the purchase price implied by the
merger agreement.
'THESE ARE NOT FORECASTS'
Hewlett's allegations focused on HP's internal financial
estimates for fiscal 2003, which were below HP's public
targets.
If the judge decides that HP intentionally misled
shareholders by covering up the true state of merger planning,
that could be grounds for throwing out the March 19 vote,
leaving the merger in uncharted territory, analysts said.
Fiorina said business targets set by individual business
managers did not need to be disclosed.
"These are not forecasts, they are planning documents," she
told Neal. "Because it is not a forecast, I don't know why you
are saying we should disclose it."
On Tuesday Neal said HP should have disclosed, among other
things, that the operating profit of the merged firm in 2003
could come in at $5.2 billion, according to the internal
numbers, rather than $6.9 billion, as HP had publicly
indicated.
Business unit managers tended to "sandbag" their outlooks,
offering pessimistic targets, which they would be able to beat,
Fiorina said.
HEWLETT TAKES STAND
But Walter Hewlett disagreed. Testifying for the first
time, he said that as a board member he had reviewed annual
forecasts by the same business managers which were not
pessimistic but "overly aggressive" he said. "That was the rule
rather than the exception." he said.
Hewlett said that he had opposed the deal for nine months,
first in HP board meetings last summer, then openly in
November. "I was after the truth," he said, explaining why he
launched the post-vote lawsuit.
"I certainly believe the HP numbers are not achievable and
I couldn't understand why they kept saying they would be," he
added, although he left the sharpest accusation to Neal, who
produced on Wednesday documents from HP and Compaq senior
executives showing concerns about the merger.
Ken Wach, Chief Financial Officer for HP's enterprise
business sent a March 10 e-mail to Wayman with figures which he
said were "a frightening reality check".
"I see little realistic upside ... I sincerely hope that we
start acknowledging the reality soon," he wrote.
For the second day, Fiorina said in court she was certain
the company will meet its goal for $2.5 billion in cost savings
with an estimated loss in revenue for the combined company of
4.9 percent.
Walter Hewlett's attorneys also allege that HP management
coerced Deutsche Bank into voting for the merger by threatening
the withdrawal of future investment banking business, although
no Deutsche Bank executives have testified yet.
Deutsche Bank worked for HP as a proxy solicitor and was
entitled to $1 million payment and $1 million bonus if the deal
went through, HP Chief Financial Officer Bob Wayman testified.
The investment bank switched its vote to a "yes" after a
conference call the morning of the shareholder vote, he said.
Deutsche Bank said its asset management team was not influenced
by banking relationships with HP when casting its vote.
Wayman said he had not known until March 18 that Deutsche
shareholders did not intend to vote for the merger and that he
had not coerced the bank to get support. He did add, however,
that he would not have hired the investment bankers if he had
known their asset management colleagues opposed the deal.
"I would not want someone who was not supportive of the
merger out there working with investors," he said.
((Caroline Humer, New York Technology Desk, 646-223 6000))
REUTERS
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