ZDNet UK / News and Analysis / Business of IT / IT Strategy

HP judge promises swift decision

By Larry Dignan, CNet, 26 April, 2002 08:57

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Merger, Compaq, HP, Hewlett-Packard, Carly Fiorina

NEWS
Three days of courtroom inquiry into Hewlett-Packard's merger efforts ended on Thursday with a Delaware judge promising to make a quick decision. The trial that pitted HP against board member Walter Hewlett came to an abrupt conclusion Thursday afternoon as both sides declined to make closing arguments. The two parties will simultaneously file post-trial briefs with the judge before 9 p.m. PT on Friday. William Chandler III, the judge hearing the case in Delaware Chancery Court here, said that both parties did a good job under tight time pressure and that he recognized the importance of the matter for the two sides. He also said that he understood the need for a swift decision. "I will get you one very quickly," Chandler said. Hewlett has been leading opposition to HP's proposed merger with Compaq Computer since shortly after the deal, now valued at about $20bn, was announced last September. In late March, he filed a lawsuit claiming that HP improperly garnered votes for the merger from Deutsche Bank, one of its largest shareholders, and charging that the company misled shareholders about problems with its integration process. Hewlett was asking the Delaware court to invalidate votes cast by HP shareholders in favor of the deal. After the proceedings, HP attorney Steven Schatz said that "HP acted totally properly, and this case is without merit." HP said in a statement that it believes Hewlett's lawyers "failed to prove their claims." "HP's management and board members demonstrated over and over again that they acted properly and consistently in the interest of shareowners," the company said. "We look forward to the chancellor's ruling and will continue to prepare for the launch of the new HP." The Hewlett camp had no comment on the proceedings. Fiorina back in the line of fire In a surprise move on Thursday morning, an attorney for Hewlett called HP chief executive Carly Fiorina back to the witness stand to answer questions about a conference call between HP and Deutsche Bank. The 19 March conference call centred on getting the bank to switch its stance to favouring the merger in a crucial shareholder vote that same day. Hewlett attorney Stephen Neal read from a meeting transcript, in which Fiorina urged Deutsche Bank to change its vote, thanked the bank representatives for listening, and told them that the vote was "of great importance to their ongoing relationship." Over the objections of HP attorneys Schatz and Boris Feldman, Neal peppered Fiorina with questions about the transcript, which she said she hadn't read carefully. According to the transcript, Fiorina told Deutsche Bank that HP's integration plan was "not based on theoretical plans." From the stand, Fiorina maintained that the transcript revealed only that she appreciated Deutsche Bank's time and that HP did not buy votes. HP's attorneys, who introduced the transcript into evidence on Wednesday, argued that it shows that Neal's claim of bribes-for-votes is thin. "That's what your bribe case comes down to: a statement at the end of a conference call," Feldman said. The judge said he will listen to an audio recording that Deutsche Bank made of the call to better understand the context and inflection of Fiorina's comments. At one point while Fiorina was on the witness stand, Neal stood close by; Feldman implored Neal to back away. "Can you give her a little room?" he asked. Fiorina seemed surprised when she was recalled to the witness stand. Earlier on Thursday morning, she arrived at the court in a jaunty mood after two days of testimony in which she held her ground against the Hewlett side. Hewlett also has testified in the case. Under cross-examination on Wednesday, he acknowledged that he had no reason not to believe HP executives when they said they had not bought Deutsche Bank's vote. On Thursday morning, Neal also called HP chief financial officer Bob Wayman to the stand to discuss the transcript, but Wayman said he did not recall many of the specifics of the call. In addition, Hewlett's attorney introduced an internal HP memo that encouraged voting parties to consider the company's customer relationships. It was unclear whether the transcript of the Deutsche Bank meeting would be made public. Initially on Thursday the court and attorneys for both sides agreed to make it public; but shortly after Neal's questioning, HP's attorneys said they had a request from Deutsche Bank that it be kept confidential. The matter is still under consideration. Hewlett adviser: No pressure on Deutsche Bank After the HP executives, Spencer Fleischer, an adviser to Hewlett, testified that in conversations he'd had with Deutsche Bank executives, no one said they felt pressured by HP. Fleischer also answered questions from HP's attorneys about his relationship with Hewlett and the fees he would get if the merger vote were to fail. The HP side pointed out that Fleischer's $12m was much larger than the $1m HP had agreed to pay Deutsche Bank if the merger succeeded. Meanwhile, Hewlett's attorneys countered that a payment from HP to Goldman Sachs, if the merger were to go through, would be much larger than the fee to Fleischer. Other questions focused on meetings between Fleischer and Deutsche Bank -- including a meeting on 19 March, the day of the shareholder vote that narrowly approved the Compaq merger -- about whether the bank would vote against the deal. After Fiorina's testimony, Compaq chief financial officer Jeff Clarke took the stand to discuss a 12 March e-mail in which Clarke said the company's combined financial prospects were "ugly." Clarke testified that the statement reflected his frustration with slow progress from various business units. "I was frustrated by the work we had done in the business groups," Clarke said. He also echoed the testimony of HP executives that the work from the business units represented just a snapshot and did not reflect the company's actual forecast. He also reiterated that the key objectives of the merger -- $2.5bn in cost savings and limiting lost revenue to 4.9 percent of sales -- are achievable. At one point during the testimony, Neal asked Clarke to discuss various numbers in the company's proxy statement. Clarke countered that he would need a calculator, which the lawyer eventually rounded up. The last to testify was Boeing chief executive and HP director Phil Condit. In brief testimony, he talked about the thoroughness of HP's integration efforts. "This merger is based on the most complete data I have seen," Condit said. He also disputed Hewlett's contention HP's business heads were overly optimistic about the combined company's financial vigor and that their estimates would need a "haircut." "I've never in my career seen that happen. Not once," he said. "I believe it is very natural for an organization to set the bar low." News.com's Ian Fried contributed to this report.
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