HP dog & pony show hits NY
CEO, other execs lambaste critics of Compaq deal, appeal directly to Wall Street analysts.
February 27, 2002: 5:39 p.m. ET
By Staff Writers Luisa Beltran and Richard Richtmyer
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NEW YORK (CNN/Money) - With three weeks remaining until a shareholder vote, the top executives of Hewlett-Packard on Wednesday took their $22 billion buyout offer for Compaq Computer directly to Wall Street, lashing out at opponents and urging analysts to look beyond the increasingly fiery rhetoric surrounding the contested merger plan.
The deal, scheduled for a shareholder vote on March 19, would be the biggest ever in the information technology industry, creating a company rivaling IBM in size and scope.
But it remains uncertain what the outcome of that vote will be as a growing number of influential shareholders have come out in opposition to it, with a critical decision from an institutional investors' advisory firm expected early next week.
Selling the benefits of a merger between the two companies was at the top of the agenda at Wednesday's analyst meeting, and executives pointed many of their comments directly at dissident director Walter Hewlett, who has launched a proxy fight in an effort to block the deal.
"The opposition would like to distract you because they can't win their campaign on substance," HP Chairman and CEO Carly Fiorina said.
"Ask yourself why am I hearing this now? Why didn't they put their case in the proxy statement?" Fiorina added.
Hewlett, the son of one of HP's (HWP: up $0.42 to $20.55, Research, Estimates) co-founders and a long-time member of its board of directors, on Tuesday claimed that the board's compensation committee, of which he is a member, had mulled a $115 million compensation package for Fiorina and Compaq (CPQ: up $0.24 to $10.65, Research, Estimates) CEO Michael Capellas.
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Hewlett suggested that by not publicly disclosing those considerations, HP was attempting to "hide the ball" with respect to the potential personal financial rewards for the two executives in the event of a merger.
He also pointed out their highly publicized refusal of "retention bonuses" totaling $22.4 million - to have been received under the condition they remained on board after a merger had been completed - which the company touted as evidence that there would be no conflict of interest.
"Shareholders have every right to know the compensation of executives," Fiorina said Wednesday. "But we cannot know information we have not yet decided."
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.
Some institutional investors also have come out against the deal, most recently Brandes Investment Partners, which on Tuesday, citing integration risks and a potential clash of corporate cultures, said it plans to vote its 25 million HP shares, representing a little more than 1 percent of the total outstanding, against the deal.
Institutional Shareholder Services, an advisory firm that many institutional investors depend on for proxy voting advice, is slated to make its recommendation on the merger early next week.
Bob Wayman, HP's chief financial officer, said the ISS recommendation is crucial because it will directly influence roughly 23 percent of HP's shares and indirectly influence many others as well.
"The ISS deliberations are very important," he told reporters during a press briefing Wednesday afternoon.
As the proxy fight has intensified in recent weeks - with the rhetoric becoming increasingly bitter and personal - HP executives have been pitching what they see as the merits of the proposed merger to investors.
Arguing that such a union is necessary to become stronger players in a consolidating and increasingly competitive industry, they assert that a merger would result in savings of $2.5 billion a year and that the combined company's fiscal 2003 operating earnings per share would rise 13 percent.
As for the idea that the merger would increase HP's exposure to the slow-growing PC business, executives suggested that combining the two companies' respective PC businesses would provide it with even more options to improve shareholder value.
"If for some reason it does not make sense to keep PCs as part of the portfolio, putting the two companies together gives a better way, that is a stronger asset, to be able to spin out," Wayman said. "But that is not our plan."
At the same time, executives said they had absolutely no plans to spin out their printing and imaging business -- one of Hewlett's recent suggestions as an alternative to a merger - because that business differentiates the company from its rivals and has the most prospects for growth.
Wayman said the merger would result in a restructuring charge ranging between $450 million and $700 million and an additional $450 million to $700 million for purchase accounting and goodwill costs.
The cash impact of the charges would be $800 million to $1.2 billion, he said.
He also forecast 2003 earnings for the combined companies at $1.51 per share, which is 12 percent higher than the Wall Street consensus for HP's stand-alone earnings of $1.35 per share.
With the ISS recommendation pending and the ongoing proxy contest, the outcome of the shareholder vote remains too close to call.
Unlike Compaq, which has asserted its ability to press on even if the deal fails, HP executives did not offer a longer-term outlook for an independent future. And many company watchers have characterized the shareholder vote as a referendum for Fiorina and the current senior management team at HP.
When confronted with the prospect of shareholders nixing the deal, Fiorina only reiterated that the merger proposal was the result of a careful consideration of all the company's alternatives.
"I'm not going to speculate on what will or will not happen in the event that this merger does not go through," she said. "If the merger is voted down, we will go back and look at all of our alternatives again." 
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