Lawsuit to block HP-Compaq merger to proceed

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Posted 7:38AM on Tuesday, April 9, 2002

WILMINGTON, Del. - A Delaware state judge ruled Monday that Hewlett-Packard Co. director Walter Hewlett can try to block the company's $19 billion merger with Compaq Computer Corp. In his 28-page decision, released Monday, Delaware Chancery Court Judge William B. Chandler III found that Hewlett's allegations that HP management tainted the shareholder vote through vote buying and false statements were sufficient reasons to merit a trial. In a statement, HP said it respected Chandler's decision but remained confident that "once the facts are heard, we will prevail." Hewlett and his allies "are entitled to a judicial determination of the validity of certain votes cast at HP's March 19" stockholder meeting, Chandler wrote. The decision came one day after Chandler held a rare Sunday morning hearing to determine whether the case should be thrown out at the earliest possible stage before discovery and trial. Hewlett claimed that HP's management illegally bought votes from shareholder Deutsche Bank just days before the shareholder vote by closing on a multibillion dollar line of credit in which the bank participated. Hewlett claimed that the bank, which owns slightly more than 1 percent of HP's outstanding shares, decided to vote 17 million of its shares in favor of the merger at the last minute to avoid jeopardizing its future business dealings with HP. Lawyers for HP argued that Hewlett's lawsuit was a "last-gasp attempt by the apparent loser of a proxy battle to obtain from the court what he could apparently not win at the ballot box." In his decision, Chandler wrote that Hewlett "stated a cognizable vote-buying" claim that HP management tipped the balance in its favor by using corporate assets. However, he said that Hewlett will have a significant burden to present evidence that Deutsche Bank was coerced by HP management into voting for the merger. Hewlett's second allegation was that the world's second-largest computer maker won proxies through fraud and deception by issuing misleading statements regarding the integration of the two businesses. He claimed that the cost savings, job cuts and revenue losses were overly optimistic for the purpose of calming investors. "Under Delaware law, a participant in a proxy contest may not lie and then obtain protection by describing that lie as a forward-looking statement," Chandler wrote. A son of HP's co-founder, Hewlett has fought a high-profile battle against the deal since the merger was announced in September. The suit was filed March 28. Votes continue to be counted after five months of debate between Hewlett and merger supporters. HP chief executive Carly Fiorina claimed a small but sufficient margin shortly after the end of the shareholder meeting. According to papers filed by Hewlett, the winning margin is less than 1 percent of the nearly 2 billion shares voted. HP said Monday that it anticipates having final, certified results in a few weeks. Shares of HP were up 13 cents to close at $17.12 in trading on the New York Stock Exchange, and gained 27 cents more in after-hours trading. Shares of Compaq were up 3 cents to close at $9.59 and rose 55 cents more in extended trading.