Hewlett: Execs would cash in
As shareholder vote nears, merger opponent says HP board mulled financial rewards for HP, Compaq CEOs.
February 26, 2002: 6:33 p.m. ET
By Staff Writer Richard Richtmyer
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NEW YORK (CNN/Money) - Firing the latest salvo in an increasingly intense proxy fight to block the merger of Hewlett-Packard and Compaq, Walter Hewlett on Tuesday said HP had considered compensation packages for the top executives of each company totaling $115 million.
Hewlett, the son of one of HP's founders and a member of its board of directors, said the board's compensation committee had discussed two-year contracts for HP's CEO Carly Fiorina and Compaq chief Michael Capellas.
Hewlett said he strongly believes that "the details of the compensation packages contemplated for the two executives are important to an investor's consideration of the proposed deal, and that HP's stockholders deserve to know this information."
He also said he has repeatedly attempted to persuade HP to disclose the compensation packages that were contemplated at the time the transaction was announced, but the company has repeatedly refused to do so.
In a press release and a report detailing some of the discussions he claims he participated in as a member of the compensation committee of HP's (HWP: up $0.03 to $20.01, Research, Estimates) board, Hewlett argues that HP is attempting to "hide the ball" with respect to the potential personal financial rewards for the two executives in the event of a merger.
Specifically, he said the board had considered paying Fiorina an annual salary of $1.6 million, a target annual bonus of $4.8 million, and 6 million stock options with a "total estimated current value" of $57 million.
For Capellas, Hewlett said the board considered an annual salary of $1 million, a target annual bonus of $3.8 million, and 4 million stock options with a current value of $38 million.
He also pointed out that each executive had turned down retention bonus totaling $22.4 million -- $8 million for Fiorina and $14.4 million for Capellas -- which HP held up as evidence that there would be no conflict of interest.
"HP has touted, and the press has widely reported, the fact that Ms. Fiorina and Mr. Capellas voluntarily declined millions of dollars in retention bonuses that would be paid if the proposed merger were completed," Hewlett said.
"At the time the press first reported such fact, HP's proxy statement stated that HP was then negotiating new employment agreements with Ms. Fiorina and Mr. Capellas," he added.
HP returns fire
HP fired back, suggesting that Hewlett is engaging in a misinformation campaign in order to woo investors over to his side ahead of a shareholder vote scheduled for mid-March.
"For Walter Hewlett to disseminate this type of misinformation just three weeks before the merger vote is another example of his recent 'do anything say anything to win' strategy," HP said in a statement.
"It is unfortunate that he is willing to blatantly breach his fiduciary duties as a HP director by misstating board discussions and fabricating information solely in an effort to gain votes," HP said.
An HP spokesman also said Fiorina's current compensation is "below market average" and pointed out that her current stock options are "under water, requiring her to dramatically improve HP's share price to realize the benefits."
Under her current compensation package, the spokesman said Fiorina would only realize substantial option compensation if she remains at HP three or more years and produces a doubling-to-tripling of HP's share price.
He also there are no assurances Fiorina will be awarded as attractive a compensation package after the merger is completed.
A Compaq (CPQ: down $0.20 to $10.40, Research, Estimates) spokesman on Tuesday said that "irrespective of what Hewlett might say today, we've been very clear about Mr. Capellas' compensation and when it will be negotiated. It's going to be negotiated after the close of the merger. That hasn't changed."
The proposed merger, which would be the largest of its kind in the information technology industry, has been steeped in controversy since it first was announced in September.
Other heirs of the founding Hewlett and Packard families, who together control roughly 18 percent of the voting shares, also oppose the merger.
Their concerns stem largely from the idea that a merger would increase HP's exposure to the flagging PC industry and low-end server business while jeopardizing its strong position in the printing and imaging business.
On Tuesday, a report in the Wall Street Journal quoted the top analyst at Brandes Investment Partners saying his firm is set to vote its 25 million HP shares, representing a little more than 1 percent of the total outstanding, against the deal when it's put to shareholders March 19.
The firm cited integration risks and a potential clash of corporate cultures as reasons it is opposed to the deal.
For their part, executives of HP and Compaq have been meeting with investors in an effort to convince them that a merger is necessary in order for them to become stronger players in and increasingly competitive industry.
They argue that a merger would result in savings of $2.5 billion a year and assert that the combined company's fiscal 2003 operating earnings per share would rise 13 percent.
It remains unclear which way all of HP's shareholders ultimately will vote, although both Fiorina and Cappelas have said they think they have enough support to clear the deal.
HP executives will defend the merger plan at an analysts meeting in New York on Wednesday. 
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