HP CEO Defends Internal Merger Estimates
Apr 25, 2002 (NewsFactor.com via COMTEX) -- In the second day of the trial
brought on by Walter Hewlett's lawsuit over the HP-Compaq merger,
Hewlett-Packard (NYSE: HWP) CEO Carly Fiorina defended the company's internal
estimates regarding the merger, telling a Delaware judge that she felt it was
unnecessary to disclose the figures publicly.
Hewlett, the son of HP co-founder William Hewlett and a strident opponent of the
merger, which HP announced in September 2001, filed suit against HP last month.
Hewlett charged HP with misleading investors about the financial outcome of the
US$22 billion merger and manipulating the votes of institutional shareholder
Deutsche Bank by threatening to cut its future investment banking business.
Forecast Gaps Questioned
Hewlett's attorney, Stephen Neal, displayed financial charts that outlined the
difference between the most recent revenue and earnings estimates and the
projections HP provided to investors. The figures showed that HP's internal
profit projections for the combined companies called for $5.2 billion in 2003,
not the $6.9 billion HP touted to shareholders.
Reportedly exasperated by some of the attorney's questions, Fiorina, who spent
more than seven hours on the stand in two days of testimony, explained that the
charts were taken out of context and belonged instead to a larger financial
picture.
Fiorina told Delaware Chancellor William Chandler, who is presiding over the
case, that a business is operated by identifying gaps between where the company
is and where it should be and by moving to close those gaps. "That's how you
produce results," she said.
Fiorina also explained that HP's internal business managers use a strategy in
which they "sandbag" their forecasts, using conservative projections so they can
beat them later.
Hewlett: Aggressive Accounting Rules
But Hewlett, who took the stand for the first time Wednesday, disagreed, saying
he has read the other forecasts by the same HP business managers and has found
that the tendency was for projections to be "overly aggressive."
"I certainly believe the HP numbers are not achievable, and I couldn't
understand why they kept saying they would be," Hewlett told the court.
Detriment to Companies
Forrester (Nasdaq: FORR) research director Carl Howe told NewsFactor in an
earlier interview that he agrees Hewlett's lawsuit is an attempt to uncover how
the company reached its final results.
Howe noted that no matter how the judge rules, a good outcome is unlikely.
For example, Howe said, if Hewlett loses and the merger proceeds, a sizable
amount of money will have been spent on litigation. It is possible, he added,
that uncertainty will reign among investors and that share prices could take a
hit.
If Hewlett wins, Howe added, both companies will be back where they started, but
with even less momentum than before.
"Neither company is in that good of a position after the merger, or
post-attempted merger, and so both of them get hit pretty hard," said Howe.
"This is not seeming to further any progress for either company," he added.
Tally Indicates Approval
HP said last week that a preliminary vote tally showed its shareholders approved
the merger, with 51.4 percent casting their ballots in favor of the marriage and
48.6 percent voting against it.
HP noted that shareowners not affiliated with the Hewlett or Packard families or
their foundations voted for the merger by a margin of roughly 2 to 1.
Final counts still must be certified before they can be considered official.
By Lisa Gill
URL: hp.com
forrester.com |
