April 23, 2002 9:10 AM PDT

Hewlett blasts HP-Compaq integration

WILMINGTON, Del.--Opening arguments began here Tuesday in the Hewlett vs. HP trial, with the lawyer for dissident shareholder Walter Hewlett displaying a host of internal e-mails contending that the proposed merger of Hewlett-Packard and Compaq Computer was having integration troubles.

Stephen Neal, of the law firm Cooley Godward, cited e-mails from the HP-Compaq "value capture team" showing the companies would be unable to hit targets outlined in an S4 document filed with the Securities and Exchange Commission filed in February.

Neal also cited e-mails from Compaq Chief Financial Officer Jeff Clarke and CEO Michael Capellas indicating that initial plans from the business units were low. Feedback to one e-mail from Clarke showed the companies had a "mile to go." In addition, Neal cited personal journal entries from Capellas questioning whether the companies could meet their goals.

But HP attorney Steven Schatz said Hewlett, son of the Palo Alto, Calif., company's co-founder, presented only half the picture, arguing that business units in the value capture team intentionally set low goals. He added that Hewlett's claim had no basis and that further testimony would prove him wrong.

HP CEO Carly Fiorina, CFO Robert Wayman and Walter Hewlett were in attendance at the court.

The proceedings kicked off a three-day trial that could help decide the fate of the $20 billion merger. Hewlett filed a lawsuit asking the Delaware Chancery Court to overturn the vote by HP shareholders to approve the deal.

Leading up to the trial, both HP and Hewlett have been mum about their respective strategies. The parties have exchanged requests and have agreed to limit disclosure to the public but allow federal regulators to examine the documents.

See special coverage: A Fight to the Finish The trial is the latest effort by Hewlett to derail the deal. Hewlett is arguing that HP improperly influenced Deutsche Bank to vote its shares for the deal. He is asking the court to throw out Deutsche Bank's votes or seek a new vote as an alternative.

HP said last week that its tally shows the company received the required votes from shareholders, but Hewlett is asking for a recount and may challenge some ballots.

All the wrangling has delayed HP's integration plans. HP had hoped to close the Compaq deal on April 1, but the company said a recount has pushed things out until early May. Nevertheless, the companies have said they are forging ahead with integration plans.

 

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