Apr 25, 2002 (The Dallas Morning News - Knight Ridder/Tribune Business News via COMTEX) -- The increasingly personal battle over Hewlett-Packard Co.'s merger with Compaq Computer Corp. is bruising the image of H-P chief executive Carly Fiorina and will likely weaken her effectiveness at the helm, analysts say.
Former H-P director Walter Hewlett, son of a company's co-founder, has built his case against the merger by accusing Ms. Fiorina of misleading shareholders about its financial impact. Now he's doing it again in a lawsuit against H-P, which narrowly won shareholder approval for the merger.
Mr. Hewlett's lawyers have aimed at Ms. Fiorina's trustworthiness, grilling her for seven hours on the witness stand Tuesday and Wednesday in Delaware about internal documents and figures that weren't shown to shareholders.
The merger fight, and now the lawsuit, have succeeded in making many shareholders doubt Ms. Fiorina's integrity, analysts said. That could bring major repercussions for her later, even if the merger escapes intact from the lawsuit and inquiries from the Manhattan U.S. attorney and the Securities and Exchange Commission.
"The biggest problem is that the CEO has to be credible with investors, especially large-scale institutional investors," said Rob Enderle of Giga Information Group. "It may be difficult for them to perceive Carly as anything but dishonest after all this, even if she didn't do anything wrong."
When Ms. Fiorina came to the H-P helm from her vice presidency at Lucent Technologies, she was known as a brash leader who wasn't afraid to take chances.
But her more unpopular decisions -- a failed bid for PricewaterhouseCoopers' consulting unit and the $19 billion stock swap for Compaq -- have led some investors to believe she's more concerned about making blockbuster moves than protecting their interests, analysts said.
That's the image Mr. Hewlett has tried to exploit since he announced his opposition to the merger in November. In letters to shareholders, he has called the Compaq merger a gamble and portrayed himself as a champion of shareholder rights.
Ms. Fiorina and other H-P executives have said they respect Mr. Hewlett while disagreeing him and even planned to re-nominate him to the board until he sued the company.
But Ms. Fiorina also repeatedly dismissed many of his requests for more information in the weeks leading up to the vote, rolling her eyes at a recent analyst meeting in New York and accusing him of trying to distract investors.
Some investors didn't like that behavior, analysts said. "She's bringing a lot of this on herself," said Needham & Co. analyst Charles Wolf.
Ms. Fiorina attracts more attention because she's one of only six women who run Fortune 500 companies, said Nancy Keene, an executive search consultant at Ambler Associates in Dallas. "They're all lightning rods for scrutiny," Ms. Keene said.
Ms. Fiorina has been fighting against a very traditional way of doing business, angering Mr. Hewlett and some longtime H-P employees who adhere to the company's founding philosophy, the "H-P Way."
In court, Mr. Hewlett's attorneys have held up memo after memo from Ms. Fiorina and other executives showing negative financial outcomes from the merger. Ms. Fiorina and H-P's attorneys have said the internal documents aren't the final, completed figures and have been taken out of context.
H-P has also tried to depict Mr. Hewlett in a negative light, saying he isn't up to speed with the fast-paced technology industry. H-P attorneys prodded Mr. Hewlett on the stand Wednesday to admit that he based his suspicions about the company's wrongdoing mostly on rumor.
If Mr. Hewlett wins the case, the court could invalidate some proxy votes, demand a re-vote or oust some executives.
The merger was worth $25 billion when it was announced Sept. 3, but investors hammered H-P's stock. H-P shares dropped 80 cents to $17.24 Wednesday, and Compaq stock rose 10 cents to $10.30.
In testimony Wednesday, Ms. Fiorina told Mr. Hewlett's attorney, Stephen Neal, that he was "accusing the CEO of a publicly traded company of lying."
"I'm only asking you questions right now," Mr. Neal replied. But not everyone saw it that way.
"They're showing filings and internal memos that are different from what the public filings say," said Dr. Jeffry Netter, a University of Georgia finance and law professor. "You can't separate their strategy in the courtroom from their strategy in the beginning of the merger fight, which was to discredit Fiorina."
Mr. Hewlett's lawyers have all but abandoned the portion of the suit many experts thought would be the trial's main focus. The suit accuses H-P of threatening to take away investment banking business from Deutsche Bank if it didn't vote for the merger.
That debate lost momentum after an independent proxy firm released the preliminary merger vote tally last week. With 51.4 percent of the vote, H-P would've barely won even if Deutsche Bank had voted against the merger.
So the focal point became what Ms. Fiorina and her team disclosed and didn't disclose to investors. That tactic could mark Ms. Fiorina's career for a long time.
"They've really reduced her effectiveness," said the University of Georgia's Dr. Netter. "The strategy seems to be to get rid of Carly Fiorina, whether you win the case and stop the merger or not."
-- The Associated Press contributed to this report.
By Crayton Harrison To see more of The Dallas Morning News, or to subscribe to the newspaper, go to dallasnews.com.
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