HP-Compaq tactics 'sleazy, disgusting' but merger staggers toward completion
WILMINGTON, Del., Apr 26, 2002 (The Canadian Press via COMTEX) -- If a Delaware judge lets Hewlett-Packard Co. complete its $19-billion acquisition of Compaq Computer Corp. - and Wall Street is confident he will - the companies will start their lives together under unprecedented scrutiny.
After the vicious four-month proxy fight led by maverick director Walter Hewlett, HP and its tenacious boss, Carly Fiorina, already were under intense pressure to make the deal work, with many employees and investors openly skeptical. The second brawl with Hewlett, a just-concluded three-day trial in Wilmington, raised more troubling allegations.
Hewlett's lawyers charged that HP hid internal projections showing the Compaq deal would fall far short of its publicly promised revenue and profit targets. Fiorina and the chief financial officers of HP and Compaq responded that Hewlett's side had taken charts and memos out of context.
In fact, Fiorina and the CFOs said they were confident the merger would not only meet its declared goal of $2.5 billion in cost savings by 2004, but probably would exceed it.
Hewlett's lawyers also presented evidence that implied HP got Deutsche Bank to vote 17 million shares for the deal by threatening to withhold future investment banking business.
In a total of 10 hours on the witness stand, Fiorina and her CFO, Robert Wayman, said they asked Deutsche money managers to support the deal on its merits and did not resort to coercive tactics.
Even if the judge accepts their explanation, investors are likely to remember Hewlett's revelations, including that Deutsche Bank provided "market intelligence" to HP for $1 million, with a potential $1 million bonus; that Fiorina told Deutsche managers their vote was "of great importance to our ongoing relationship" and that HP's proxy solicitor noted that HP had a "carrot" to use in persuading Deutsche Bank.
"In many respects Carly is damaged goods - clearly she was very aggressive to unethical, somewhere in between," said merger critic David Katz, president of Matrix Asset Advisors, which owns large stakes in both companies.
"The million-dollar proxy fee - it's sleazy. It's disgusting. And this is the one that we're aware of. The largest shareholders across the board seem to have voted for the deal. So are they that much smarter than anyone who voted against it? No. I'm sure there was lots of aggressive actions that were taking place."
A preliminary tally found 51.4 per cent of HP shares were voted for acquiring Compaq, with 48.6 per cent against. Now both sides are challenging individual proxies.
HP's lead is 45 million shares - which means Chancery Court Judge William Chandler likely would have to find HP completely corrupted the proxy process before he would side with Hewlett and overturn the vote. Chandler has said he plans to rule quickly.
The Securities and Exchange Commission and federal prosecutors in New York are also investigating HP's actions in the proxy fight.
Meanwhile, HP and Compaq are doing their best to put all the ugliness behind them and begin officially working together May 7.
HP has rid itself of Hewlett, deciding not to renominate its co-founder's son for another term on the board. For the first time in the 63-year history of the company, Hewlett-Packard's management and board include no Hewletts or Packards.
HP spokeswoman Rebeca Robboy said that although the proxy fight and trial demanded the attention of Fiorina, Wayman and other executives, the vast majority of HP and Compaq's 150,000 employees have been focused on doing their daily jobs and serving customers.
Compaq and HP have each posted reasonably solid quarterly results recently, despite the weak economy and the uncertainty surrounding the merger, which Robboy called a clear sign that customers aren't fleeing.
How HP and Compaq customers react to the combination will be the most important development. Most seem to have reserved judgment, said analyst Paul McGuckin, a Gartner Inc. research director.
"If there are significant stumbles in the first 100 days, I can see customers deciding that they've had enough," McGuckin said. "If they execute well in the first six months, all of these shenanigans we've been going through will just be a distant memory."
BRIAN BERGSTEIN The online source for news sports entertainment finance and business news in Canada
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