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Technology Stocks : HWP -- Hewlett Packard -- Ignore unavailable to you. Want to Upgrade?

To: Dave B who wrote (4587)	4/25/2002 12:49:43 PM
From: Dave B	Read Replies (1) \| Respond to of 4722

WILMINGTON, Del., Apr 25, 2002 (Houston Chronicle - Knight Ridder/Tribune Business News via COMTEX) -- Hewlett-Packard Co. dissident director Walter Hewlett conceded Wednesday that a letter that turned out to be a fake prompted some of his concerns about the computer maker's purchase of Compaq Computer Corp. Taking the stand in the second of a three-day trial to determine whether shareholders were misled and coerced into approving the merger, Hewlett spent much of his time facing a hostile cross-examination. The heir who led the opposition to the megamerger testified at the end of a long day that began with HP Chief Executive Officer Carla Fiorina sparring with Hewlett's attorney over whether the company sold the deal using inflated information. Hewlett is trying to convince the Delaware Chancery Court that the vote should be thrown out because the company covered up negative information and improperly won votes from a big investment company. Hewlett told the court he had been hearing rumors that backers of the merger were downplaying its problems and overstating the benefits. "I certainly did not believe HP's numbers" on how much the company could cut its costs and improve profits after the combination, said Hewlett, the son of Hewlett-Packard founder William Hewlett. In the midst of his campaign against the merger, Hewlett obtained a document purportedly written by Compaq Chief Executive Officer Michael Capellas that seemed to support those claims. But as the parties prepared for their battle in court, "I was informed by counsel there's a possibility that was not a true document," Hewlett testified. Company attorneys also raised questions about his diligence as a board member by pointing out he missed three board meetings last week while details about the potential merger were discussed. Hewlett noted that he had reason to doubt rosy predictions about the combination of the companies from top management, which had failed to make its earnings predictions in four of the last six quarters. The companies' comments about the potential benefits of the HP-Compaq marriage matter because Hewlett's attorneys are hoping to persuade Judge William Chandler III to throw out the results of a tight shareholder vote because HP allegedly used misleading data. The takeover was approved by a thin margin of 51.4 percent of HP shareholders voting for it, with 48.6 voting against. The victory margin was 45 million shares. Company managers assured shareholders uncertain about the deal that the merger would provide a cost savings of about $2.5 billion, while limiting revenue losses to less than 4.9 percent. The company anticipated some revenue drop as customers opt for competitors' products rather than buy from a computer maker in the throes of a merger. Fiorina, in her second day on the witness stand, argued that the numbers the business units were generating weren't forecasts but, rather, were business goals the units wanted to be sure they could beat, a system of assured success HP managers called "sandbagging." But as Hewlett attorney Stephen Neal continued to press her as to why the company did not disclose those business unit numbers to shareholders, Fiorina became angry. "Sir, you are accusing the CEO of a publicly traded company of lying," Fiorina said. Hewlett's team also grilled HP Chief Financial Officer Bob Wayman about his dealings with company shareholder Deutsche Bank. Hewlett-Packard had hired one arm of Deutsche Bank to help encourage HP shareholders to approve the merger. The firm was to be paid at least $1 million for its services -- $2 million if the effort succeeded. Deutsche Bank's asset management arm was itself a Hewlett-Packard shareholder. Wayman testified that his company's liaison at Deutsche Bank, Ben Griswold, had assured him the bank planned to vote in favor. "I would not want somebody not supporting the merger out there with my investors," Wayman said. A few days before the vote, however, Hewlett-Packard executives learned that Deutsche Bank was in the dissident camp. On the morning of March 19, an admittedly "agitated and frustrated" Wayman was on the phone with Deutsche Bank officials. That day, Deutsche Bank, controlling somewhere between 17 million and 24 million votes -- the total is disputed -- switched sides and voted in favor. Even if HP was unable to count Deutsche Bank's shares in support of the deal, it would not have been enough to alter the results of the vote. But its late change of heart has been brought up as a key fact in Walter Hewlett's argument that investors were being strong-armed. "I don't threaten," Wayman said. "I don't coerce. I don't entice, and I don't mislead." Walter Hewlett's dissident camp hired its own advisers, Friedman, Fleischer & Lowe, to evaluate the deal and help lobby shareholders to oppose it. The firm was paid $3 million but would have received $12 million if shareholders had rejected the proposal. Spencer Fleischer, vice chairman of Friedman Fleischer & Lowe, is scheduled to testify today. HP and Compaq officials are hoping to complete the merger by May 7. The agreement to try the dispute in such a short time frame was a recognition that the companies cannot remain in limbo indefinitely. The judge has not indicated when he will rule in the case. The trial is expected to conclude today. By David Ivanovich To see more of the Houston Chronicle, or to subscribe to the newspaper, go to houstonchronicle.com (c) 2002, Houston Chronicle. Distributed by Knight Ridder/Tribune Business News.