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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: hlpinout who wrote (94255)	12/14/2001 7:09:02 AM
From: hlpinout	Read Replies (1) \| Respond to of 97611

From NYT. -- December 14, 2001 Who's Looking Out for the Shareholders? By NELL MINOW WASHINGTON -- Using populist arguments straight out of a Frank Capra movie, the scions of the Hewlett and Packard families are urging other shareholders of the Hewlett-Packard Company to join them in opposing the company's purchase of Compaq Computer. But this is no struggle between money-loving Mr. Potter and man-of-the-people George Bailey for the soul of the Building and Loan. There are no George Baileys here. Corporate mergers and acquisitions rarely work out — as Compaq's own troubled acquisition of Digital Equipment in 1998 illustrates. Unfortunately, it is just as rare for corporate boards of directors to vote against such deals. Too often, boards approve whatever plan the chief executive proposes — at a cost to shareholders, whose interests boards are supposed to protect. Shareholders may benefit from this protest by the Hewlett and Packard heirs, especially if it results in a new deal with better terms. So in this sense the founders' children are asking the right questions. But it will be far from a populist victory. Instead, it will merely show that a few wealthy activists, whose fathers started the company, own enough stock to stop the deal. The founders of Hewlett-Packard put 16.3 percent of their shares into charitable foundations, and those foundations, guided in part by the heirs, have announced that they intend to vote against the merger. Along with family members who have also pledged their opposition, some 18 percent of the stockholders have now said they will vote against the deal. "All signals have been negative for this transaction," said Walter Hewlett, son of William, the founder, noting that it has resulted in "billions of dollars" of shareholder losses. It might have been a good idea for Mr. Hewlett and his fellow directors to anticipate some of those negative signals before approving the deal. In fact, the day before the deal was announced in September, Mr. Hewlett voted in favor of it as a member of the Hewlett-Packard board. Mr. Hewlett has said he had qualms even then, but he has never fully explained his vote. Had his change of heart come sooner, he might have saved shareholders some of those billions of dollars in lost market value. If the deal is averted, Hewlett-Packard will still have to pay Compaq a $675 million "breakup fee." The Hewlett and Packard heirs claim that they have a special feeling for what their fathers would have wanted. David Woodley Packard has talked about the need to preserve Hewlett-Packard's unique corporate culture and save the 15,000 jobs expected to be eliminated if the sale is completed. These are surely laudable goals. But what we need to know is not what the founders might have thought, but what the right thing is to do now. Maybe Hewlett-Packard does need to reduce its work force — or maybe these predicted layoffs are exaggerated. Either way, a well-intentioned appeal to corporate heritage hardly qualifies as due diligence. No one can know for certain, of course, whether the merger is a good idea or a bad one in the long term. But those negative signals the market sent by lowering the stock price on the merger announcement reflect not just a lack of confidence in the deal, but a lack of confidence in the board. Bored or desperate chief executives are easily persuaded by investment bankers to make swashbuckling deals that are much more fun than reducing costs and testing new products. Directors usually go along with whatever the chief executive asks, either because they're friends or because they're not paying close attention. If the Hewletts and the Packards stop this deal, it will be the rare case. But not all shareholders can rely on interested heirs to raise questions about corporate strategy. That's the role of corporate boards, and all too often they fail in their mission to protect shareholders' interests. Nell Minow is co-author of "Corporate Governance" and editor of the Corporate Library, a research firm in Washington.