A Delaware judge today is mulling whether to allow Walter Hewlett to proceed with his lawsuit accusing Hewlett-Packard Co. of illegally buying shareholder votes in order to allow it to proceed with its controversial buyout of Compaq Computer Corp.
HP claims the suit by Hewlett, son of one of the companys late co-founders, is baseless, with the companys attorneys charging that it merely represents a "last gasp attempt" by the merger foe to block the deal.
Last week, HP filed a motion urging the Delaware Chancery Court to quickly dismiss the suit, filed March 28.
At a special hearing Sunday in Wilmington, Chancellor William B. Chandler III heard Hewletts attorneys detailed allegations that HP pressured one of its largest shareholders, Deutsche Asset Management, a subsidiary of Deutsche Bank, to change its "no" votes to "yes" or risk losing an unspecified amount of business with the computer maker.
"Deutsche Bank was fearful of what would happen" if it voted against the merger, charged Hewlett attorney Lawrence C. Ashby. "The company put the arm on Deutsche Bank."
As a result, Deutsche Asset Management voted 17 million of its approximate 25 million shares in favor of the deal. Its unclear whether it voted any of its shares against the deal. While a final tally of the HP shareholder vote has yet to be released, Hewletts attorneys contend the winning margin amounted to less than 1 percent of ballots cast, meaning the contested votes could swing the election.
In addition, Hewlett claims HP purposely mislead shareholders prior to the March 19 vote by releasing overly optimistic and unrealistic projections about future savings and earnings as a result of the merger.
In its rebuttal, HPs lawyers contended that Deutsche Asset Managements reasons for changing its vote were irrelevant.
"Deutsche Bank based its vote on its own business judgment," said Donald J. Wolfe Jr., an attorney hired to represent HP. "The court does not need to consider business judgment."
Besides, laws governing shareholder elections are so outdated and vague, Wolfe said, that investors could sell their votes on auction sites like eBay and still not violate the letter of the law.
HPs attorneys also denied Hewletts claim that the company purposely mislead investors about projected benefits of the deal.
"Statements about future events and performance are not guarantees," said HP lawyer Steven M. Schatz, noting that the company clearly indicated that in all of its reports to investors.
At the conclusion of yesterdays hearing, Judge Chandler said he would decide whether to dismiss the suit over the next few days. Should the judge reject HPs motion to dismiss the suit, the case will go to trial April 23.
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