January 7, 2002 5:00 PM PST
HP lashes back at Walter Hewlett
According to a Monday filing with the Securities and Exchange Commission, a letter signed by all eight directors--Hewlett excluded--disputed Hewlett's reasons for voting as a director in favor of the deal while planning to vote his shares against the merger as a shareholder. The directors also questioned his priorities because of his absence at some key board meetings, during which merger details were discussed.
The latest round of mudslinging between the parties raises the question of whether Hewlett, son of HP co-founder William R. Hewlett, will resign from the board or be dropped from the list when the company's nominating committee presents its slate of directors for re-election at the annual meeting.
HP declined to comment on that question, other than to note that a date for the annual shareholders meeting has not been set. The nominating committee includes several board members; Hewlett is not among them.
A representative for Hewlett said: "Walter has no plans to resign. He was elected by HP shareholders to protect their interests. And that is what he will continue to do."
When Hewlett filed his proxy late last month, he stated that he'd had a private conversation with the company's legal adviser, Larry Sonsini, at a board meeting three days before HP's vote on the merger.
He stated that Sonsini told him that with or without Hewlett's approval of the pending merger, the remaining board members supported the deal and would put it to a shareholder vote. But since the merger agreement required a "unanimous vote," if Hewlett voted against it, the agreement would have to be renegotiated, and that could have resulted in a higher price for the deal. Hewlett also stated that Sonsini told him he could vote for the deal as a director, but vote his shares against it as a stockholder.
Sonsini did not return phone calls seeking comment.
Hewlett stated in his proxy that as a result of Sonsini's statements, he decided to vote in favor of the merger to avoid a potential price increase--given that the issue would be presented to shareholders whether he favored the deal or not.
But HP directors say such advice was never given.
"You were never advised that HP would be forced to pay a higher price for Compaq if you voted against the merger," HP's filing states. "In fact, there was no discussion regarding a nonunanimous board vote requiring the payment of a higher price for Compaq. Moreover, as you know, at the time of the alleged discussions regarding these matters, price, among other significant issues, remained unresolved."
Hewlett's proxy filing, however, characterized Sonsini's advice as citing the possibility of a price increase, rather than the absolute certainty of one.
"Fine lines and half truths"
"The board's letter is a careful construct of fine lines and half truths," Hewlett said in response to the directors' letter. "By words or silence, the board confirms that...I was advised by company counsel that this transaction would be approved with or without my board vote, and that I could approve it as a director and still vote against it as a stockholder."
HP directors also note in their letter to 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 shareholders. 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's board members also dispute the timing of when they learned Hewlett would vote his shares against the merger. The directors said they did not learn of his definite intentions until Nov. 6--the day Hewlett publicly disclosed he would vote against the deal.
Hewlett previously told board members of his concerns regarding the deal and that he might vote his shares against the merger, but it was not presented as a definite until his public announcement, a source said.
In Hewlett's proxy filing, he states that he made his concerns about the merger known to the directors as soon as the deal was proposed in May. The proxy also says that as Hewlett cast his vote in favor of the deal, he said that if the shareholder vote was held that day, "he would vote against the proposed merger as a stockholder."
"Despite my known opposition to the transaction, management and its representatives negotiated a contract that required unanimous board approval," Hewlett said in his letter to the directors.
In their letter, the directors also question Hewlett's priorities in terms of company matters.
"We believe it is inappropriate that you neglected to disclose in your recent filing that you failed to attend key meetings of the HP board of directors at which financial and strategic aspects of the merger were discussed in detail," the filing states.
In July, when the board was weighing whether to go forward with discussions on the merger or to table the issue, Hewlett missed the first day of a two-day board meeting to perform in an orchestra at the exclusive Bohemian Grove in Monte Rio, Calif.
Hewlett has previously said that he believes megamergers in general have a slim success rate and that a Compaq acquisition would dilute the value of HP's profitable printer business while increasing its exposure to the low-margin PC business.
The company, however, believes the $25 billion merger would strengthen its corporate computing business and give it a greater role in the consulting business--enabling it to become a one-stop solution for customers.