From the NY Times
March 29, 2002
Hewlett Heir Files Lawsuit to
Overturn Merger Vote
By CHRIS GAITHER
AN FRANCISCO, March 28 — Walter B.
Hewlett, who has fought to keep the
company his father helped create from merging
with Compaq Computer (news/quote), today took
his fight to court in an effort to block the $24 billion
deal that Hewlett-Packardsays it has won.
In papers filed in Delaware Chancery Court, Mr.
Hewlett claims that Hewlett-Packard
(news/quote)'s managers used corporate assets to
"entice and coerce" a large institutional shareholder
into switching its votes in favor of the merger during
the final moments of polling on March 19. The suit also says
that the company misled shareholders with
inaccurate predictions about the postmerger company,
including overestimates of profits and underestimates
of layoffs.
Mr. Hewlett, a director of Hewlett-Packard who has not
conceded defeat despite claims of victory by the
company, requested that the votes of the institutional
investor, a subsidiary of Deutsche Bank (news/quote),
be thrown out. He also asked the court to disqualify all
votes cast in favor of the deal and to declare either
that Hewlett-Packard lost its merger bid or to force a revote.
The lawsuit is the latest chapter in an unusual and sometimes
harsh campaign by a dissident director to quash
a friendly merger. Carleton S. Fiorina, the chief executive
of Hewlett-Packard, said after the shareholder vote
that she had won by a "slim but sufficient" margin. Though
the final results of an official count, under way in
Delaware, are not expected for several weeks, leaders from
Hewlett-Packard and Compaq have increased
efforts to integrate the two computer giants.
"A true count of the validly cast and properly solicited
votes at the H.P. March 19, 2002, special meeting
would show that the proposal to issue shares in connection
with the proposed merger was defeated," says the
suit, brought by Mr. Hewlett and Edwin E. van Bronkhorst on
behalf of the William R. Hewlett Revocable
Trust, a leading shareholder.
Hewlett-Packard said the suit was without merit and said it
would defend
itself.
"We find it regrettable that Mr. Hewlett has chosen to resort
to baseless
claims without regard to the impact of his false accusations
on H.P.'s business
reputation and employees," it said in a statement.
The suit asks the court to expedite the case and, in the
meantime, enjoin the
company from closing the merger.
Representatives from Deutsche Bank and its subsidiary,
Deutsche Asset
Management, did not respond to requests for comment.
With the 18 percent stake held by the Hewlett and Packard
families united
against the deal, Ms. Fiorina faced a fight. As the vote
approached, she and
Mr. Hewlett engaged in a campaign of advertising and personal
phone calls
to shareholders.
Even as the political jostling took place, hundreds of
employees from the two
companies were developing plans for integrating their
computer products,
employees and cultures. In recommending that shareholders
approve the
deal, a proxy advisory firm, Institutional Shareholder
Services, cited those
extensive integration efforts as signs of confidence that the
companies could
execute the merger.
But all the while, the suit claims, the integration team knew
that it was falling
behind the publicly stated projections. Mr. Hewlett says that
team members
discovered that the deal would not meet those projections
until 2004 instead
of 2003; earnings per share would be more than 30 cents a
share, or $1
billion, less than predicted; and as many as 24,000 employees
might lose their jobs, instead of 15,000.
"H.P. management knowingly misrepresented the conclusions and
progress of the preclosing intercompany
integration efforts being undertaken jointly by H.P. and
Compaq," the suit says.
The full-court press on investors continued until the final
moments of voting. Four days before the vote,
Hewlett-Packard announced that it had secured a $4 billion
credit facility to pay for merger costs. Deutsche
Bank was named as a co-arranger.
Deutsche Asset Management had already cast 25 million votes
against the merger. The next business day
after helping to arrange the credit line, the suit says,
Deutsche Bank began to fear Hewlett-Packard's reaction
to its decision.
"Deutsche Bank was led to understand that if it did not
switch its votes to favor the proposed merger, its
future business dealings with H.P. would be jeopardized," the
suit says.
On the morning of the vote, the bank quickly arranged
conference calls with both sides. Hewlett-Packard
delayed the start of the shareholder vote by 30 minutes.
While the company says it was waiting for
shareholders to find parking, the suit says Ms. Fiorina was
waiting for Deutsche Bank to make up its mind.
The management firm finally switched up to 17 million votes
in favor of the deal. As soon as she learned that
its votes were cast, the suit says, Ms. Fiorina ended the
meeting.
Jesse Choper, a law professor at the University of California
at Berkeley, said that buying shareholder votes
or failing to disclose updated information in proxy
statements could serve as grounds for a court to require a
new vote.
"It's a perfectly plausible lawsuit, if you can prove the
allegations," he said.
Charles R. Wolf, an analyst with Needham & Company, compared
Mr. Hewlett to Don Quixote tilting at
windmills, but he praised him for revealing a potentially
questionable relationship between Hewlett-Packard
and Deutsche Bank. "I really applaud the guy for taking a
shot on an issue that may not have legal
ramifications, but certainly has moral ramifications," he said.
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