Judge OKs HP-Compaq Merger Deal
SAN JOSE, Calif., Apr 30, 2002 (AP Online via COMTEX) -- A Delaware judge Tuesday cleared Hewlett-Packard Co. of allegations it acted improperly in the vicious proxy fight over the Compaq Computer Corp. acquisition, likely paving the way for the completion of the high-tech industry's biggest merger.
After a three-day trial last week in Wilmington, Del., Chancery Court Judge William B. Chandler ruled that former HP director Walter Hewlett failed to support his charges that HP bullied a big investor into supporting the Compaq deal and lied to investors about the progress of the merger plans.
Hewlett can challenge the ruling in the Delaware Supreme Court. The HP heir said in a statement he planned to review the ruling closely before deciding on his next step.
Palo Alto-based HP and Houston-based Compaq have said they plan to begin working together May 7. An HP spokeswoman did not immediately return a call Tuesday seeking comment.
Chandler's ruling, released Tuesday, concluded another contentious chapter in Hewlett's fight to stop what would be the biggest high-tech merger in history.
After HP narrowly won its shareholder vote on the Compaq acquisition, Hewlett tried again to block the deal by suing the computing giant, which his father, William Hewlett, co-founded in 1939. He sued in Delaware because HP is incorporated there, as are many Fortune 500 companies.
That step so angered HP management and its other directors that Hewlett was not renominated for another term on the board, leaving the Silicon Valley institution without a Hewlett or Packard for the first time.
A preliminary tally released two weeks ago found that HP won the shareholder vote 51.4 percent to 48.6 percent. That amounted to a lead of 45 million shares - more than the 17 million to 24 million believed to have been cast by Deutsche Bank.
The tally is not yet official because both sides are challenging individual ballots, a process known as "the snake pit."
The trial in Delaware featured 10 hours of testimony from HP's top two executives, CEO Carly Fiorina and chief financial officer Robert Wayman.
Hewlett claimed that HP threatened to withhold future investment banking business from Deutsche Bank unless the investment firm canceled its vote against the deal and voted for it at the last minute.
In a voice mail for Wayman two nights before the March 19 shareholder vote, Fiorina suggested they do something "extraordinary" for Deutsche Bank. Then in a conference call with Deutsche money managers about an hour before the shareholder vote began, Fiorina said their decision was "of great importance to our ongoing relationship." Hewlett attorneys also said HP's proxy solicitor had noted on a planning chart that HP had a "carrot of future business" to use in lobbying Deutsche Bank.
Deutsche Bank was performing a variety of services for HP, including giving "market intelligence" advice for $1 million, with a $1 million bonus contingent on the deal's approval. Deutsche's top investment official was recorded saying the firm's vote on the HP-Compaq deal was highly sensitive and needed to be changed "as fast as humanly possible."
Fiorina and Wayman said they asked Deutsche money managers to support the deal on its merits and did not resort to coercive tactics.
The judge agreed, saying, "The plaintiffs can point to nothing in those exchanges that indicates a threat from management that future business would be withheld by HP from Deutsche Bank." Also, he wrote, there is no evidence that the Deutsche money managers thought their "discretion had been limited because of such a threat."
To support his claim that HP misled investors about the chances the $18.4 billion Compaq merger would generate its promised financial benefits, lawyers for Hewlett cited internal projections that showed the deal falling far short of its publicly disclosed targets.
Hewlett's team introduced internal memos from Compaq's chief financial officer, Jeff Clarke, calling the projections "ugly" and "a disaster" and saying the integration team had "a mile to go."
The plaintiffs also found a personal diary entry by Compaq CEO Michael Capellas in which he wrote of the "sobering thought" that HP and Compaq were about to embark on a historic deal. "At our course and speed we will fail," Capellas wrote.
But Clarke, Fiorina and Wayman testified that the negative comments were motivational ploys. They also said the weak projections were drawn up by HP and Compaq managers who intentionally set low targets they knew they could beat. Fiorina called the process "sandbagging" and said it happens all the time.
Hewlett testified he saw the opposite happen in his 15 years on the HP board - that business unit leaders tended to be too optimistic about what they could produce. But another HP director, Boeing Co. chairman and CEO Phil Condit, disputed that account, saying sandbagging is all too common.
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On the Net:
hp.com
compaq.com
Hewlett site: votenohpcompaq.com
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