The heat will be turned up on Hewlett-Packard Co. this week when a Delaware court hears allegations that the company strong-armed investors and released misleading information to win a critical shareholder vote that cleared the way for its $19 billion buyout of Compaq Computer Corp.
Evidence presented at the trial will also be subject to intense scrutiny outside the courtroom, with HP disclosing last week that two federal agencies have launched separate investigations into claims the company went too far in lobbying investors.
Amid the growing controversy, HP last week released detailed results of its shareholder election last month, showing the measure passed by a margin of 51.4 percent to 48.6 percent. According to a ballot count overseen by IVS Associates Inc., about 837.9 million shares were voted in favor of the merger, while 792.6 million were cast against it.
The bitter, seven-month proxy fight waged in the media moves to the courtroom this week as Walter Hewlett, the lead opponent of the deal, seeks to convince a Delaware judge that HP executives strong-armed New York-based Deutsch Asset Management S.A., the investment arm of Germanys Deutsch Bank AG, to vote 16 million shares for the deal by threatening to withhold its business from the bank.
In the trial, starting Tuesday in the Delaware Chancery Court, Hewlett also will seek to prove that HP, of Palo Alto, Calif., but incorporated in Delaware, misled shareholders by issuing knowingly inaccurate earnings projections to make the buyout of Houston-based Compaq appear more appealing.
HP has repeatedly denied the allegations, which company Director Bob Wayman this month blasted as "insulting and infuriating."
Wayman lashed out after a newspaper released a transcript of voice mail left for him by HP Chairman Carly Fiorina two days before last months vote in which she suggested they would need to "do something extraordinary" to win the support of Deutsch Bank and another major investor, Northern Trust Corp., of Chicago.
Following release of the voice mail, two federal agencies launched their own investigations into Hewletts claims. HP disclosed last week that the U.S. Attorneys Office for the Southern District of New York had subpoenaed HP to turn over communications between it and Deutsch Bank and Northern Trust.
In a separate action, the Securities and Exchange Commissions San Francisco office asked HP to voluntarily turn over similar information.
"Well just be watching to see how this all shakes out before we make any decisions," said Compaq user Marshall Fernholz, procurement manager for the American Medical Association, in Chicago.