|
HP slams Hewlett in letter
|
 |
January 7, 2002: 5:55 p.m. ET
No. 2 hardware maker refutes heir's claims of pressure to vote for merger.
By Staff Writer Luisa Beltran
|
NEW YORK (CNN/Money) - The battle between Hewlett-Packard Co. and board member Walter Hewlett heated up Monday as the world's No. 2 computer hardware maker refuted claims made by the Hewlett heir in his bid to block the $22 billion HP-Compaq merger.
Palo Alto, Calif.-based HP claims that Walter Hewlett was not pressured into voting in favor of the merger and claims that the issue of price and other matters were unresolved on Aug. 31, HP said in a letter to Walter Hewlett.
"We know you to be an independent thinker and an experienced board member who knows very well what your fiduciary duties are - to vote as a director in the best interests of HP shareowners," HP said. "We all assumed that you were upholding those duties when you willingly voted in favor of the merger as a director. To suggest that you were pressured into approving the merger is inaccurate and inappropriate."
HP made its letter public in a filing with the Securities and Exchange Commission Monday. HP said that Hewlett failed to publicize the fact that he failed to attend key board meetings where financial and strategic aspects of the merger were discussed.
"Quite frankly Walter, you have never offered an alternative strategy that we all haven't debated and rejected," HP said in a letter signed by HP CEO Carly Fiorina and various directors.
Walter Hewlett, son of an HP co-founder William R. Hewlett, has launched a proxy battle to stop HP from acquiring Compaq and began meeting with institutional investors a month ago, a spokesman said.
Hewlett, along with financial advisers from San Francisco-based Friedman Fleischer & Lowe LLC, has visited more than 20 large institutional shareholders on the East Coast to make his case against the merger. The road show is expected to continue, the spokesman said.
Hewlett responded late Monday, reiterating claims that HP outside counsel Larry Sonsini told him that HP would go forward with its Compaq takeover whether or not Hewlett voted for the deal or not. In fact, HP needed a unanimous board vote or the computer hardware maker would have to have paid a higher price for Compaq.
Sonsini then told him that he could vote for the deal as board member but vote against it as a shareholder, Hewlett said Monday.
"Nothing in the board's letter will distract Hewlett-Packard stockholders from focusing on the real issue, nor change this bad transaction into a good one," Hewlett said.
Hewlett-Packard (HWP: down $0.14 to $23.02, Research, Estimates) shares dropped nominally Monday while Compaq's (CPQ: up $0.29 to $11.68, Research, Estimates) stock gained more than 2 percent.
EC to vote late January
The $22 billion HP-Compaq merger has faced considerable opposition since its announcement in September. In early December, a key shareholder, the David and Lucille Packard Foundation, made a preliminary decision to vote against the merger. The Packard Foundation holds more than 10 percent of HP's shares. Other heirs of the founding Hewlett and Packard families also are opposed to the merger.
Combined, the Packard Foundation and the heirs hold roughly 19 percent of HP's shares.
HP will face its next hurdle later this month, when the European Commission is scheduled to rule on HP's $22 billion takeover of Compaq Computer Corp.
Palo Alto, Calif.-based HP (HWP: down $0.14 to $23.02, Research, Estimates) and Compaq submitted their merger for review to European regulators in late December. The EC is scheduled to complete its examination of the HP-Compaq merger on Jan. 31. If the regulators need more time to consider the merger, the review could be prolonged until May.
The Federal Trade Commission is also evaluating the merger and has issued a second request for information from HP on the transaction. Unlike the EC review, the FTC's examination has no timetable and involves a series of FTC requests for information, with HP and Compaq responding.
"We continue to work with the FTC," an HP spokeswoman said.
The transaction, which has already been sanctioned by Canadian regulators, is expected to easily gain approval from the EC, analysts said.
Having filed their preliminary proxy last November, HP and Compaq have yet to set a date for the long-expected vote.
"We haven't issued our final [proxy] because [the initial] is still in SEC review," the HP spokeswoman said.
HP expects the SEC examination to end this late month. HP and Compaq plan to issue their final proxy on the merger in late January, which will set the stage for the vote sometime in late February or early March.
HP anticipates completing discussions with both the FTC and the EC in the first quarter and closing the merger sometime in the first half of this year, the spokeswoman said.
Odds of merger succeeding
Even with EC approval, chances of the merger going through are slim, as the deal needs approval from 67 percent of institutional shareholders, analysts have said. A recommendation from Institutional Shareholder Service, which was hired by some institutional investors to advise on the deal, is expected to carry significant weight.
ISS will issue its recommendation once the companies have filed their final proxy, a source familiar with the situation said. The ISS decision will look at the merger based on financial and governance issues. However, ISS does not usually issue its recommendation until two-to-three weeks before a shareholder vote, an industry source said.
Though the likelihood of the merger now is questionable, influential analyst Andy Neff, of Bear Stearns, does see a slim chance of the transaction succeeding.
"We still think that there is a slightly better than even probability of a merger going through, although with some alterations to meet the objections of either regulators (the EU's initial decision is expected on Jan. 31) or shareholders," Neff said in a research note dated Jan. 3. "Either way, there are challenges for the companies as one company or as separate companies."
Analyst Dan Niles of Lehman Brothers Monday upgraded his rating on Compaq to "strong buy" from "buy," even though he doesn't think the HP merger will come to fruition.
Compaq shares, which closed at $11.39 on Friday, should be trading higher, Niles said. Based on HP's fixed exchange ratio, Compaq shares should be selling at $14.65.
"The general investor consensus is that the merger will not occur due to the opposition of the Hewlett and Packard families," Niles said in a research note Monday. "However, if HP manages to complete its acquisition of Compaq, we believe Compaq shareholders will receive a premium from its current stock price."
Niles has a $13 price target for Compaq shares, which he set in December.
Compaq surprised analysts Monday when it said it expects to post a fourth-quarter profit instead of a loss and will beat Wall Street forecasts.
Compaq's strong numbers show that the computer maker is focusing more on its own operations, one analyst said off the record. "They definitely have different agendas," the analyst said. "HP is more focused on getting the deal done, while Compaq is focused on making its own numbers as well as the merger." 
|
|
|
|
|
 |
|
