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

To: Dave B who wrote (4588)	4/25/2002 12:50:38 PM
From: Dave B	Read Replies (1) \| Respond to of 4722

WILMINGTON, Del., Apr 25, 2002 (San Jose Mercury News - Knight Ridder/Tribune Business News via COMTEX) -- After a combative second day, the Hewlett-Packard trial has come down to one key question: Should HP executives have disclosed internal reports showing concerns about the company's efforts to merge with Compaq Computer? That question was behind much of the testimony by irritated HP executives who spend Wednesday sparring with a lawyer representing Walter Hewlett, the HP board member fighting to stop the merger. The trial in Chancery Court -- Delaware's legal venue for corporate matters -- is expected to conclude today. Then, one person, William Chandler, the chancellor of the court, will decide HP's fate by ruling whether the company misled shareholders about the merger and whether the shareholder vote on the deal should be thrown out. His decision is expected early next week. A preliminary tally released last week found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6 percent came out against. That gives HP a lead of 45 million shares. Both sides may still challenge the vote count. The second day of the trial began with Carly Fiorina, HP's chief executive, returning to the witness stand to testify about the nature of internal reports from business units in February and March. The reports dealt with the units' projected ability to meet financial estimates for fiscal 2003, which begins in November of this year. The reports are key documents in Hewlett's case against HP because they reveal doubts about the company's ability to achieve financial targets at a time when Fiorina and other executives were saying that the company was ahead of schedule in its integration plans. Ken Wach, chief financial officer for HP's enterprise business, sent an e-mail to HP Chief Financial Officer Bob Wayman with figures that Wach characterized as "a frightening reality check. "I see little realistic upside... I sincerely hope that we start acknowledging the reality soon," he wrote. Fiorina testified that she expected reports at that stage of the integration planning processto be pessimistic. Managers who wrote the reports, she said, were new to their roles and often "sandbag" financial projections, meaning that they provide artificially low estimates of what actual performance may be. The reports compared how the managers thought they could perform to what HP expected them to do after the companies merged. "These are not forecasts, they are planning documents," she told Hewlett's chief attorney, Stephen Neal. "Because it is not a forecast, I don't know why you are saying we should disclose it." But Neal continued to press Fiorina about the executives who wrote the reports and how they most likely had more in-depth information about business units than she did. "Sir, you are accusing the CEO of a publicly traded company of a lie," said Fiorina. "No, I'm only asking questions," Neal said. There were lighter moments while Neal was questioning Wayman, including one exchange where Neal made a joke about the possibility that Wayman's son might take Neal's daughter to the prom. "I'd take an eye out," Wayman said. Wayman said Hewlett's allegation that the company pressured one shareholder, Deutsche Bank, to switch its vote with the promise of future business angered him. "I don't threaten," he said. "I don't coerce. I don't entice." On the issue of disclosure, Neal asked Wayman if it was possible that there would come a point where reports from the business groups should have been disclosed to shareholders. Wayman said there could be a time -- when the information was "mature" enough. Neal pointed out that HP shareholders had only until March 19 to make a decision about the merger and that the most "mature" information at the time was coming from the business units. Hewlett, on the stand for 90 minutes Tuesday, directly countered the company's line on the documents, asserting that if anything, HP business units tend to be overly optimistic about their financial outlook. "It was the responsibility of the board to give them a haircut," said Hewlett, whose 15-year tenure on the HP board ends Friday, when shareholders meet in Cupertino to elect a new board and conduct other routine business. (His fellow board members did not renominate him for a seat after he filed suit to challenge the vote.) Hewlett said he heard rumors that things were not going well in the integration process. He received what appeared to be a forged letter from Michael Capellas and a letter from an anonymous shareholder that was also sent to the Securities and Exchange Commission. Hewlett never shared the information with the board. Steve Schatz, a lawyer for HP, pressed Hewlett about why he did not come to the board with information about problems with the integration. Hewlett said that communications had broken down with the board. By Michelle Quinn To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to bayarea.com (c) 2002, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.