WSJ(5/1) Judge Dismisses Suit Over HP, Compaq Deal
By Pui-Wing Tam
After an eight-month quagmire of proxy fighting, name calling and legal wrangling, Hewlett-Packard Co.'s $18.6 billion plan to buy Compaq Computer Corp. is a big step closer to completion.
Delaware Chancery Court Judge William B. Chandler III dismissed a lawsuit from dissident shareholder Walter Hewlett, son of an H-P co-founder, who had aimed to block the deal. In his 45-page opinion, issued yesterday after a three-day trial last week, Judge Chandler wrote that Mr. Hewlett and his team "have failed to prove" claims that H-P withheld information from shareholders and perpetrated a vote-buying scheme.
The judge's decision removes one of the last hurdles blocking H-P's acquisition of Compaq. Mr. Hewlett, an H-P director for 15 years until last week, waged a proxy battle that grew bitter and personal. After shareholders appeared to approve the deal by a slim margin on March 19, Mr. Hewlett filed suit March 28 contending that the Palo Alto, Calif., company had improperly coerced Deutsche Bank AG into switching a portion of its votes in favor of the deal. Mr. Hewlett also alleged that H-P improperly hid its misgivings about how its integration efforts with Compaq were proceeding.
But while the judge exonerated H-P executives, he wrote pointedly of concerns about potential conflicts of interest at Deutsche Bank in how it decided to swing 17 million of its votes in H-P's direction just before the vote. A March 19 conference call in which H-P made its case to the bank was initiated by Deutsche's commercial-banking group, which also attended the call, he wrote. "This fact raises clear questions about the integrity of the internal ethical wall that purportedly separates Deutsche Bank's asset management division from its commercial division," he wrote.
Judge Chandler's decision follows a preliminary tally of the shareholder vote by proxy counters IVS Associates, which calculated that H-P shareholders approved the acquisition by a slim 45-million-vote margin, with 51.4% of votes cast in favor of the deal and 48.6% against. A final certified tally from the proxy counters is expected within the next week or so, said a person familiar with the situation.
A spokesman from IVS Associates didn't return a call seeking comment.
Mr. Hewlett could still file an appeal contesting the judge's dismissal of both claims, potentially delaying an outcome on the deal. An appeal would bring the case in front of the Delaware Supreme Court, which is viewed as the ultimate arbiter of such matters. But yesterday, Mr. Hewlett was cautious about his next step, saying that he would "review the court's written opinion and decide on a course of action."
Mr. Hewlett, in a statement, added that he was "disappointed" with the judge's decision, but would remain involved in H-P through his position as chairman of the William and Flora Hewlett Foundation, one of H-P's largest stockholders.
An H-P spokeswoman said, "The ruling speaks for itself. Clearly, we're gratified and it's time we have the opportunity to move on."
While an appeal from Mr. Hewlett wouldn't be surprising given his persistence in attempting to block the Compaq purchase, legal experts said any appeal with the Delaware Supreme Court would face an uphill battle. Rory Millson, an attorney at Cravath, Swaine & Moore in New York, notes that "a lot of deference is paid to the findings of the trial judge" since the judge has heard live witnesses. "There would have to be some unusual point of law for the Delaware Supreme Court" to overturn the ruling, Mr. Millson said.
David Brown, a partner at Alston & Bird in Washington, D.C., added: "An appeal would be a waste of time. The fact-intensive ruling that the court made makes it very difficult for an appeal; the judge was clearly trying to make his decision as bullet-proof as possible."
In his opinion, Judge Chandler said the evidence surrounding Mr. Hewlett's contention that H-P had coerced Deutsche into switching votes was "circumstantial." During the trial, Mr. Hewlett's attorneys had presented a voice-mail from H-P Chief Executive Carly Fiorina where she spoke of taking "extraordinary" action to persuade Deutsche to vote for the deal, as well as transcripts of her conversation with Deutsche officials on March 19, the morning of the shareholder vote. The evidence led to some sharp exchanges in the courtroom between Mr. Hewlett's attorneys and Ms. Fiorina, who repeatedly denied having done anything wrong.
Judge Chandler, in his opinion, said he did "not believe that [Ms.] Fiorina's voice-mail evidences an intent to employ improper means to persuade Deutsche Bank." In addition, Judge Chandler said the transcripts of Ms. Fiorina's conversations with Deutsche "all concerned the merits of the proposed merger and not the effect of Deutsche Bank's vote on its future business relationship with H-P."
However, the judge devoted a paragraph in his ruling to say he found it "troubling" that it was Deutsche investment bankers who arranged for H-P to have the March 19 conference call with them and the asset-management group in charge of voting the shares. H-P last month was subpoenaed by the U.S. attorney's office in Manhattan seeking information about Deutsche's voting. The company has said it was contacted by the Securities and Exchange Commission about the matter as well.
A Deutsche Asset Management spokeswoman declined to comment on the ruling.
Judge Chandler also said Mr. Hewlett hadn't provided evidence that H-P had misrepresented its integration efforts with Compaq to shareholders. Mr. Hewlett's attorneys had pointed to internal H-P financial documents, which showed integration efforts falling short of publicly stated goals, as evidence of the claim. But the judge said the testimony and evidence "demonstrates that H-P's statements concerning the merger were true, complete and made in good faith."
H-P said last week that it plans to complete its acquisition of Compaq and launch as a combined company on May 7. Given the way the protracted fight for the deal unfolded, H-P and Compaq will face close scrutiny from Wall Street as they attempt to merge their different cultures and to fulfill the financial goals laid out when they pitched the deal to investors. H-P's financial goals for the combined company include $2.5 billion in cost savings and no more than a 4.9% loss in revenue.
In after-hours trading, H-P's shares were at $16.98, down 12 cents from the 4 p.m. New York Stock Exchange composite trading close, while Compaq's shares were at $10.50, up 35 cents.
---
Aaron Lucchetti contributed to this article.
(END) DOW JONES NEWS 04-30-02
07:33 PM |
