Final day of testimony at HP trial
WILMINGTON, Del., Apr 25, 2002 (Knight Ridder Newspapers - Knight Ridder/Tribune News Service via COMTEX) -- Just hours before Hewlett-Packard shareholders gathered to vote on the company's $19 billion merger with Compaq Computer, Carly Fiorina, HP's chief executive, made one last-ditch call to a key shareholder.
In a conference call, Fiorina told them that the merger was "of great importance to our ongoing relationship."
Did Fiorina's reference to the "ongoing relationship" constitute a thinly veiled threat?
Fiorina's statements were made public Thursday in the final day of testimony in a trial that could overturn HP's shareholder vote, which narrowly approved the Compaq deal.
The conference call provided some courtroom drama as Fiorina and Bob Wayman, HP's chief financial officer, were called back to the stand to answer new questions about what, if any, pressure they put on Deutsche Bank to switch 17 million of its HP shares to vote for the merger. The call was taped and made available to both parties late Wednesday by Deutsche Bank officials in Europe. Only portions were read in court Thursday.
For Walter Hewlett, the HP board member whose suit to overturn the vote led to this trial in Charcery Court, the conference call provided some 11th-hour fuel for the two issues central to his case.
Hewlett accused HP of coercing Deutsche Bank to switch its votes at the last minutes out of fear it would lose business with HP. He also alleged HP painted an overly rosy picture of the companys' efforts to blend operations - projections that contradict assessments made in HP internal memos. Those memos were never disclosed to shareholders.
On March 19, with the shareholder meeting just minutes away, HP and Deutsche hastily arranged the conference call. The previous day, HP had discovered that Deutsche was going to vote its 25 million shares against the merger. In testimony earlier this week, Wayman said he had previously assumed that Deutsche was going to vote for the merger.
Wayman asked for a chance to talk to Deutsche executives about the merits of the merger. In the conference call, Wayman spoke about revenue goals. Fiorina painted an aggressively optimistic portrait of the integration process, saying at one point: "These are not theoretical plans, not plans that someone else is coming up with or that someone else has to execute. These are plans that the leadership of this new company...know they are accountable for. That's why we have exceedingly high confidence here."
At some point in the conversation, Fiorina thanked the Deutsche officials and said she must leave for the shareholder meeting. "This is obviously of great importance to us as a company. It is of great importance to our ongoing relationship," she said. "We would very much like to have your support here. We think this is a crucially important decision for this company."
Stephen Neal, Hewlett's lawyer, asked Fiorina if it was her "intent in those concluding remarks to suggest to Deutsche Bank in any way that the business it would receive from Hewlett-Packard company in the future would depend on how it voted."
"Absolutely not," Fiorina said. "And I don't believe they interpreted it that way."
But at some point in the conference call, possibly when Fiorina was not on the call, Dean Barr, global chief investment officer of Deutsche's asset management division, tells other Deutsche officials how crucial HP is to Deutsche.
"You may or may not be aware that we have an enormous banking relationship with Hewlett-Packard," he told them.
"Obviously I don't want to change your vote, that's your call. I would suggest to you - and I am not trying to put undue pressure - but make sure that you have a very strong documented rationale for why you voted the way you did as it relates to this merger. This is extremely sensitive to people like Dr. (Rolf) Breuer and Dr. (Josef) Ackermann," Barr said. Breuer and Ackermann are top Deutsche Bank executives.
HP lawyer Boris Feldman was dismissive of Neal's attempts to make something out of Fiorina's statement. "That's what the bribery case comes case comes to now," Feldman said, while cross-examining Fiorina. "A statement at the end of your call with Deutsche Bank."
In separate testimony about the integration of the companies, Hewlett's lawyers called Jeff Clarke, Compaq's chief financial officer and the co-leader of the integration effort. Clarke had sent e-mails to Wayman and Michael Capellas, Compaq's chief executive, expressing his concern that the integration teams were not meeting the goals of the combined company.
In one message, Clarke said that "both companies are deteriorating." In another, Clarke said the situation was "ugly." Clarke said he was referring to the integration plans. "I was frustrated that the work being done at the executive committee was not being accepted by the business groups."
Clarke said that he suggested layoffs as high as 24,000 positions to force the business units to work harder, even though Fiorina had stipulated that there would be no more than 15,000 layoffs.
Despite concerns that the trial would spill over to Friday, lawyers for Hewlett and HP rested their cases mid-afternoon.
William Chandler, III, the chancellor of Chancery Court, has given both sides until midnight Friday to simultaneously file briefs with their final arguments. The judge could hear oral arguments before ruling on the case. He is expected to make a decision by early next week.
In a related matter, David Finger, a lawyer representing the Mercury News, asked in a hearing that the judge make confidential documents and testimony available to the public. Finger asked that the full transcript and tape of the Deutsche conference call, Deutsche officials' deposition and other evidence central to the case be made public.
Chandler ruled Thursday that the depositions of Dan Burch, Hewlett's proxy solicitor, and Alan Miller, HP's proxy solicitor, would be made public. The chancellor also said he would rule on releasing the Deutsche materials and depositions after a lawyer for Deutsche could review them.
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By Michelle Quinn Knight Ridder Newspapers CONTACT: Visit Mercury Center, the World Wide Web site of the Mercury News, at www0.mercurycenter.com Distributed by Knight Ridder/Tribune Information Services.
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