Hewlett gives up after judge clears hurdle for mega-merger to move forward

Wednesday, May 1st 2002, 12:00 am

By: News On 6

PALO ALTO, Calif. (AP) _ After months of legal wrangling and corporate fighting, Hewlett-Packard Co. is finally on the verge of closing its $18 billion acquisition of rival Compaq Computer Corp.

A Delaware judge ruled Tuesday that HP did nothing wrong in the bitter proxy fight over the Compaq deal, giving the giant computer and printer maker the vindication it had sought after former director Walter Hewlett sued in a final attempt to sink the merger.

Hewlett claimed that HP bullied a big investor into supporting the Compaq deal and lied to investors about the progress of the merger plans. Chancery Court Judge William B. Chandler III said Hewlett failed to prove his allegations in a three-day trial last week in Wilmington, Del.

``The evidence demonstrates that HP's statements concerning the merger were true, complete and made in good faith,'' Chandler wrote.

The decision prompted Hewlett, 57, to admit defeat. The son of HP cofounder William Hewlett said he will not appeal Chandler's decision and will abandon his challenge of the HP shareholder vote that the company won 51.4 percent to 48.6 percent _ one of the closest corporate elections in years.

The Securities and Exchange Commission and federal prosecutors in New York also have been looking into some of Hewlett's allegations. But assuming there are no more obstacles, Palo Alto-based HP and Houston-based Compaq hope to begin working together May 7.

``Clearly we're gratified,'' HP spokeswoman Rebeca Robboy said. ``We look forward to moving on.''

Chandler's ruling concluded another contentious chapter in Hewlett's fight to stop what would be the biggest merger in the history of the high-tech industry.

In asking the judge to overturn the shareholder vote, Hewlett claimed HP threatened to withhold future investment banking business from Deutsche Bank unless the investment firm canceled its vote against the deal and voted for it at the last minute. Deutsche bank holds enough shares that its votes could have a significant impact on the final results.

Among his evidence: A voice mail from HP CEO Carly Fiorina to chief financial officer Robert Wayman two nights before the March 19 shareholder vote, in which Fiorina suggested they do something ``extraordinary'' for Deutsche Bank.

Hewlett also cited a conference call with Deutsche money managers about an hour before the shareholder vote began in which Fiorina said their decision was ``of great importance to our ongoing relationship.'' And he noted that HP's proxy solicitor had written on a planning chart that HP had a ``carrot of future business'' to use in lobbying Deutsche Bank.

Deutsche Bank was performing a variety of services for HP, including giving ``market intelligence'' advice for $1 million, with a $1 million bonus contingent on the deal's approval. Deutsche's top investment official was recorded saying the firm's vote on the HP-Compaq deal was highly sensitive and needed to be changed ``as fast as humanly possible.''

But Fiorina and Wayman said they merely made an extraordinary last-minute pitch to Deutsche money managers to support the deal on its merits and never resorted to coercive tactics.

The judge agreed, saying, ``The plaintiffs can point to nothing in those exchanges that indicates a threat from management that future business would be withheld by HP from Deutsche Bank.''

Chandler did have some harsh words for Deutsche Bank, saying the evidence raised troubling ethical questions about the separation of its investment banking and asset management divisions.

Hewlett sued in Delaware because HP is incorporated there, as are many large U.S. companies. His lawsuit so angered HP management and its other directors that he was not renominated for another term on the board, leaving the company without a Hewlett or Packard in its boardroom for the first time.

``This has been an astonishing sequence of events,'' said Gartner analyst Martin Reynolds. He added that because of all the scrutiny on the deal since it was announced Sept. 3, ``I really believe this is one of the best planned mergers we've ever seen.''