Hewlett-Packard Heir Defends Opposition to Merger after CEO's Testimony
WILMINGTON, Del., Apr 25, 2002 (Houston Chronicle - Knight Ridder/Tribune
Business News via COMTEX) -- Hewlett-Packard Co. dissident director Walter
Hewlett conceded Wednesday that a letter that turned out to be a fake prompted
some of his concerns about the computer maker's purchase of Compaq Computer
Corp.
Taking the stand in the second of a three-day trial to determine whether
shareholders were misled and coerced into approving the merger, Hewlett spent
much of his time facing a hostile cross-examination.
The heir who led the opposition to the megamerger testified at the end of a long
day that began with HP Chief Executive Officer Carla Fiorina sparring with
Hewlett's attorney over whether the company sold the deal using inflated
information.
Hewlett is trying to convince the Delaware Chancery Court that the vote should
be thrown out because the company covered up negative information and improperly
won votes from a big investment company.
Hewlett told the court he had been hearing rumors that backers of the merger
were downplaying its problems and overstating the benefits.
"I certainly did not believe HP's numbers" on how much the company could cut its
costs and improve profits after the combination, said Hewlett, the son of
Hewlett-Packard founder William Hewlett.
In the midst of his campaign against the merger, Hewlett obtained a document
purportedly written by Compaq Chief Executive Officer Michael Capellas that
seemed to support those claims.
But as the parties prepared for their battle in court, "I was informed by
counsel there's a possibility that was not a true document," Hewlett testified.
Company attorneys also raised questions about his diligence as a board member by
pointing out he missed three board meetings last week while details about the
potential merger were discussed.
Hewlett noted that he had reason to doubt rosy predictions about the combination
of the companies from top management, which had failed to make its earnings
predictions in four of the last six quarters.
The companies' comments about the potential benefits of the HP-Compaq marriage
matter because Hewlett's attorneys are hoping to persuade Judge William Chandler
III to throw out the results of a tight shareholder vote because HP allegedly
used misleading data.
The takeover was approved by a thin margin of 51.4 percent of HP shareholders
voting for it, with 48.6 voting against.
The victory margin was 45 million shares.
Company managers assured shareholders uncertain about the deal that the merger
would provide a cost savings of about $2.5 billion, while limiting revenue
losses to less than 4.9 percent.
The company anticipated some revenue drop as customers opt for competitors'
products rather than buy from a computer maker in the throes of a merger.
Fiorina, in her second day on the witness stand, argued that the numbers the
business units were generating weren't forecasts but, rather, were business
goals the units wanted to be sure they could beat, a system of assured success
HP managers called "sandbagging."
But as Hewlett attorney Stephen Neal continued to press her as to why the
company did not disclose those business unit numbers to shareholders, Fiorina
became angry.
"Sir, you are accusing the CEO of a publicly traded company of lying," Fiorina
said.
Hewlett's team also grilled HP Chief Financial Officer Bob Wayman about his
dealings with company shareholder Deutsche Bank.
Hewlett-Packard had hired one arm of Deutsche Bank to help encourage HP
shareholders to approve the merger.
The firm was to be paid at least $1 million for its services -- $2 million if
the effort succeeded.
Deutsche Bank's asset management arm was itself a Hewlett-Packard shareholder.
Wayman testified that his company's liaison at Deutsche Bank, Ben Griswold, had
assured him the bank planned to vote in favor.
"I would not want somebody not supporting the merger out there with my
investors," Wayman said.
A few days before the vote, however, Hewlett-Packard executives learned that
Deutsche Bank was in the dissident camp.
On the morning of March 19, an admittedly "agitated and frustrated" Wayman was
on the phone with Deutsche Bank officials.
That day, Deutsche Bank, controlling somewhere between 17 million and 24 million
votes -- the total is disputed -- switched sides and voted in favor.
Even if HP was unable to count Deutsche Bank's shares in support of the deal, it
would not have been enough to alter the results of the vote. But its late change
of heart has been brought up as a key fact in Walter Hewlett's argument that
investors were being strong-armed.
"I don't threaten," Wayman said. "I don't coerce. I don't entice, and I don't
mislead."
Walter Hewlett's dissident camp hired its own advisers, Friedman, Fleischer &
Lowe, to evaluate the deal and help lobby shareholders to oppose it. The firm
was paid $3 million but would have received $12 million if shareholders had
rejected the proposal.
Spencer Fleischer, vice chairman of Friedman Fleischer & Lowe, is scheduled to
testify today.
HP and Compaq officials are hoping to complete the merger by May 7. The
agreement to try the dispute in such a short time frame was a recognition that
the companies cannot remain in limbo indefinitely.
The judge has not indicated when he will rule in the case. The trial is expected
to conclude today.
By David Ivanovich
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(c) 2002, Houston Chronicle. Distributed by Knight Ridder/Tribune Business News
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