Alternative Strategy Is Offered for Hewlett

By STEVE LOHR

Walter B. Hewlett, with a shareholder vote in a month, issued a report
yesterday that sketched out an alternative plan for Hewlett- Packard - a
strategy, he argued, that could leave stockholders better off by $14 to $17
a share than if the company proceeds with its proposal to buy Compaq
Computer (news/quote).

In the 16-page presentation, Mr. Hewlett asserted that under what he called
his "focus and execute" strategy, Hewlett-Packard (news/quote)'s operating
profit margins could potentially double to 8.4 percent, compared with his
financial advisers' projections for the margins of the merged company.

The report, filed with the Securities and Exchange Commission, and
summarized in a letter to shareholders, was Mr. Hewlett's response to the
Hewlett-Packard management's repeated statements that he had no alternative
strategy.

Mr. Hewlett, an heir of the co- founder and a Hewlett-Packard board member,
is leading a proxy fight against the Compaq merger. Joined by the Hewlett
and Packard family foundations, Mr. Hewlett quickly lined up 18 percent of
the Hewlett-Packard shares against the plan, which was announced last
September. A shareholder vote on the merger is scheduled for March 19.

Carleton S. Fiorina, the chief executive of Hewlett-Packard, has recently
expressed confidence that things are turning in favor of the merger, as she
and other members of her management team meet with institutional investors
to explain their view of the deal.

The company issued a statement yesterday dismissing Mr. Hewlett's plan as
one "hastily cobbled together in an attempt to satisfy those who question
his failure to provide a viable alternative to the merger with Compaq."

The company's financial advisers criticized Mr. Hewlett's presentation -
titled "H.P. Has Higher-Value, Lower-Risk Strategic Alternatives to the
Proposed Merger" - as a combination of "motherhood and apple pie" platitudes
and the financial arithmetic of advocacy.

The enhanced value of $14 to $17 a share, they said, came from unspecified
cost reductions and profit improvements from Mr. Hewlett's plan, which
features focusing on Hewlett- Packard's lucrative printer business,
selectively building up its services and large computer units and paring
down the personal computer business. Then, Mr. Hewlett's document
arbitrarily understates, the company's advisers say, the benefits from the
merger.

Mr. Hewlett's document, the company advisers added, was an effort to come up
with a "headline number" to sway some unsophisticated shareholder votes in a
proxy contest that is turning against him.

In his statement to shareholders, Mr. Hewlett expressed continued optimism
that he would prevail. "We believe we are seeing widespread, strong
opposition, and we are confident that we are doing very well," he said.

Mr. Hewlett's advisers described the "alternatives" document as a "framework
and principles" for a plan other than the Compaq merger. A more detailed
strategy, they added, was the responsibility of the entire Hewlett-Packard
board, not a single director.

In his document, Mr. Hewlett also makes it clear there is only one member of
the Hewlett-Packard management he expects to leave if the merger plan is
defeated: Ms. Fiorina. The report states that the company "could benefit
from new leadership" and praises the depth of Hewlett-Packard's management
team. The report then goes on to show how the shareholders of several
companies, including Apple Computer (news/quote) and I.B.M. (news/quote),
have prospered after chief executives were replaced.

As part of their campaigns, each side has posted its arguments and documents
on Web sites set up for the proxy fight. Mr. Hewlett's Web site is
www.VoteNoHpCompaq.com. The company's Web site is www .VotetheHPway.com.

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