Fiorina claims merger victory; Hewlett sues, claims HP coercion

As official count proceeds, lawsuit charges
HP influenced swing vote with finance offer

HP CEO Carly Fiorina declared victory in the shareholder struggle over the future of HP less than an hour after the company’s shareholder meeting closed March 19. But less than 10 days later, dissident director Walter Hewlett filed a lawsuit charging HP with coercing an investment bank to change its vote on 17 million shares in favor of the deal — or risk having HP cancel business with the investor.

Hewlett made a statement on the day when Fiorina declared victory, saying that “the results of today’s vote are too close to call.” His lawsuit asked a Delaware court to block the merger and resolve the matter by tossing out the coerced votes.

Victory statements are premature, he added. “In a proxy contest this close, where stockholders are changing their votes right up until the closing of the polls, it is simply impossible to determine the outcome at this time,” Hewlett added.

HP responded by refusing to nominate Hewlett to retain his seat on the board. HP’s rebuff would clean the board of anyone named Hewlett or Packard for the first time in the company’s history. Shareholders vote on the new board on April 26.

HP delayed the start of the merger shareholder meeting by 30 minutes. The Wall Street Journal reported that Hewlett’s advisors say the delay gave HP time to lobby institutional investor Deutsche Asset Management, which had previously voted its 25 million shares against the matter. HP claimed that the delay gave meeting attendees time to find parking.

HP issued a statement saying that Hewlett’s suit is “completely without merit and intend to vigorously defend it. We find it regrettable that Mr. Hewlett has chosen to resort to baseless claims without regard to the impact of his false accusations on HP’s business reputation and employees.” The lawsuit charges that HP used its business resources to promote an outcome which half of its shareholders opposed. The suit aims to have the votes of 25 million shares thrown out.

Hewlett has promised to support the merged company’s aims if the shareholder vote approves the merger. His lawsuit contends that two business days before the stockholder vote, HP enticed Deutsche Bank to switch the vote of 17 million out of its 25 million shares in favor of the merger by adding it as a co-arranger to a new multibillion-dollar line of credit.

Fiorina said in her victory claim that HP won a “slim but sufficient” margin in the shareholder voting. Hewlett’s suit asks the Delaware court to expedite a ruling on the suit in the interests of HP’s business.

The lawsuit claims Deutsche changed its vote because it “was led to understand that if it did not switch its votes to favor the proposed merger, its future business dealings with HP would be jeopardized,” according to court documents.

Whatever the outcome of the merger, HP’s cost of the struggle to merge the two firms, over unprecedented shareholder opposition, has been estimated at more than $200 million. Additionally, HP and Compaq have committed more than $500 million in retention bonuses for their top employees, according to SEC documents. Six thousand HP executives are in line for the bonuses.

The bonuses may have to be paid out of lower revenues. Dow Jones Newswires reported that internal HP memos showed lower sales in hardware and services in the period leading up to the vote. HP has won approval from institutional investors for the deal on the belief that it can execute business at a normal rate through the merger. The deal now has an integration team of more than 1,000 employees.

After the CEO’s victory claim, HP acknowledged that it still does not have an official vote total. “Official certification of the voting results by the independent inspectors of election, IVS Associates, is expected in the next few weeks,” HP said in a statement, “at which time the certified results will be announced promptly.” Internal HP Web sites hoped for an April 2 official count, a deadline which passed with no official results in sight.

Fiorina said the struggle to close the Compaq deal – which put her own job on the line – “has raised important issues and prepared us even more fully for the integration and marketplace challenges that lie ahead. It’s now time for all of us — those who supported the merger and those who opposed it — to pull together for the benefit of the company.”

Preliminary estimates from proxy solicitation companies showed HP’s margin victory to be under 1 percent. HP disputed that result. Final results of the vote could take as long as seven weeks to produce. Compaq shareholders proceeded with their vote on the merger the day after HP’s March 19 meeting. The Compaq investors approved the deal by a 9:1 margin, reflecting that company’s red ink position in the quarters leading up to the merger.

Compaq CEO Michael Capellas had said that if the HP shareholders defeated the merger, Compaq would cancel its vote on the matter. HP stock slid downward in the weeks after the shareholder vote.