Hewlett side unconvincing, analysts say
Apr 25, 2002 (The Dallas Morning News - Knight Ridder/Tribune News Service via COMTEX) -- Hewlett-Packard Co.'s hard-fought acquisition of Houston-based Compaq Computer Corp. appeared closer to fruition Thursday after lawyers seeking to block the merger failed to provide a convincing argument, analysts said.
Chancellor William Chandler III of the Delaware Chancery Court gave lawyers until midnight Friday to file post-trial briefs. He could make a decision as soon as Monday.
Lawyers for merger opponent Walter Hewlett accused HP of misleading investors before a March 19 shareholder vote on the acquisition. HP narrowly won that vote, according to a preliminary count, and official certification could come soon. If Chandler finds that HP withheld information it should have disclosed to investors, he could call for a revote or disqualify some votes.
But analysts said they didn't see any evidence from the trial that HP might have hidden information, though not all evidence was open to public view because of its financial sensitivity.
Hewlett's lawyers didn't have incontrovertible evidence that HP had done something wrong, said Toni Sacconaghi, an analyst at Sanford C. Bernstein, in a research note to clients. "Expect HP to prevail," she wrote.
"The things that came out of the trial further tarnish the image of HP a little bit, but frankly, not as much as I was suspecting," said Gartner Inc. analyst Paul McGuckin. "I thought the wide net of subpoenas for e-mails and documents Walter Hewlett's lawyers were casting would turn up something more damaging."
Even if HP is cleared, it still faces scrutiny from the Manhattan U.S. attorney's office and the Securities and Exchange Commission for its merger-related actions. But those inquiries could take months, and HP plans to make its merger with Compaq official by May 7.
"The lawyers have done their thing. That's great," said Greg Bustin, president of Dallas consulting firm Bustin & Co. "Now you've got to get back to running the business."
Shares of HP, based in Palo Alto, Calif., rose 17 cents to $17.38 Thursday, while Houston-based Compaq's stock climbed 10 cents to $10.46.
The trial's biggest moment of intrigue Thursday came when HP chief executive Carly Fiorina took the stand to explain a transcript of a conference call she'd had with Deutsche Bank executives, the Associated Press reported. Hewlett's lawyers accused HP of threatening to pull its business from Deutsche Bank if it voted against the merger. Fiorina has said no such pressure was applied, though HP is a Deutsche Bank client.
"This is obviously of great importance to us as a company," Fiorina told Deutsche money managers, according to a transcript. "It is of great importance to our ongoing relationship."
Fiorina defended the "ongoing relationship" statement, saying it is a common way to speak to an investment bank, particularly one such as Deutsche Bank, which buys computer equipment from HP, AP reported.
That's the way each piece of new evidence seemed to move through the trial. Hewlett's lawyers would introduce a document as proof that executives had private doubts about the merger, and HP's lawyers would say the document was taken out of context.
Hewlett's side also introduced internal memos from Compaq Chief Financial Officer Jeff Clarke calling the projections "ugly" and "a disaster" and saying the integration team had "a mile to go," AP reported.
Clarke testified Thursday that those comments were also taken out of context; he called them motivational messages, AP said.
Clarke said HP and Compaq are more confident than ever that the merger can be a financial success. The companies believe $3.5 billion in cost savings are possible by 2004, well ahead of the publicly touted figure of $2.5 billion, he said, according to AP.
As HP awaits the outcome of the trial and the final merger tally, it also continues its plans for a swift integration. If the merger becomes a reality, the company will have to make up for the time it has lost in the long merger battle, analysts said.
"The longer it takes to move forward from an implementation standpoint, the less productive it's going to be no matter how you measure it," Bustin said.
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By Crayton Harrison The Dallas Morning News CONTACT: Visit The Dallas Morning News on the World Wide Web at dallasnews.com Distributed by Knight Ridder/Tribune Information Services.
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