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A Delaware judge has dismissed Walter Hewletts lawsuit accusing Hewlett-Packard Co. of misconduct during its efforts to lobby shareholders to support the companys $19 billion buyout of Compaq Computer Corp.
Judge William Chandler III of the Delaware Chancery Court issued his ruling shortly after the stock markets closed in New York Tuesday.
The ruling clears the way for HP to complete its acquisition of Compaq, with HP Chairmain Carly Fiorina last week testifying that the company was looking to finalize the merger by May 7.
Hewlett said he was disappointed with Chandlers decision and said he and his lawyers are reviewing the ruling to see what their next step will be. They could appeal the ruling to the Delaware state supreme court.
“While we are disappointed with the courts decision, we are grateful that it heard this case on such an expedited timeframe,” Hewlett said in a statement issued after the ruling. “We will now review the Courts written opinion and decide on a course of action.”
HP issued a brief statement, saying that Chandlers decision “speaks for itself. HP is gratified by the ruling and we look forward to the opportunity to move on.”
The court ruling was the biggest hurdle HP had to clear to complete the deal. IVS Associates, a Delaware firm charged with counting the shareholder votes, said in mid-April that a preliminary count indicated that shareholders appeared to have approved the acquisition by a 45 million vote margin, or by a percentage maring of 51.4 to 48.6. About 1.63 billion shares were voted.
In his lawsuit filed March 28, Hewlett, son of the companys late co-founder, William Hewlett, accused HP executives of misleading shareholders about the financial benefits and potential losses of the Compaq deal and of improperly pressuring a large institutional shareholder, Deutsche Bank, into convincing its investment arm into voting 17 million shares in favor of the buyout during the March 19 shareholder vote.
But Chandler was not swayed by the testimony and evidence presented during the three-day trial last week. >”The evidence demonstrates that HPs statements concerning the merger were true, complete and made in good faith,” Chandler said in his 44-page ruling, commenting on testimony and documents presented during the three-day trial last week in Wilmington, Del.
Hewlett, who was removed from HPs board of directors during the companys annual shareholders meeting last week, vowed to continue to remain a force in the company founded by his father and the late David Packard, whos family had joined Hewlett in opposing the deal first announced in September.
You Havent Seen The Last Hewlett
“My involvement with HP will not end today,” Hewlett said. “As Chairman of The William and Flora Hewlett Foundation and as a trustee of The William R. Hewlett Revocable Trust, I represent two major stockholders and I will continue to monitor the companys performance to ensure that it acts in the best interests of all stockholders.”
Hewlett, who originally joined in a unanimous HP board vote in favor of the buyout, publicly denounced the deal just one month later, claiming he was coerced by company executives into initially supporting the deal.
He argued that the deal would increase the Palo Alto, Calif., companys exposure to the already struggling PC market and undermine the profitability of the computer makers market leading printing and imaging business.
HP executives, led Fiorina, countered that the merger provided the company with the best opportunity to boosts its sagging share in key computing markets, and that it would dramatically expand the companys product and service offerings, making it more attractive partner to enterprise customers seeking an all-in-one provider.
Since the proxy battle began in earnest in November, exchanges between HP management and Hewlett became increasingly bitter, with HPs board publicly belittling Hewletts business expertise by referring to him as an “academic and musician,” and Hewlett firing back that Fiorina was failing as CEO and should be replaced.
The battle appeared to culminate on March 19 when HP declared that, based on its preliminary estimates, it had won the hard-fought shareholder vote. However, detailed results werent released until two weeks ago, at which time HP said claimed a slim 51.4 percent-to-48.6 percent margin of victory. IVS Associates, a Delaware firm, said the shareholders had passed the deal by about 45 million votes.
Having apparently failed to sway shareholders to halt the deal, Hewlett filed suit on March 28 in Delaware Chancery Court accusing HP of releasing misleading information to shareholders that contradicted its own internal reports. Hewlett also claimed HP strong-armed investor Deutsch Asset Management into voting about 17 million shares for the merger by threatening to cut business ties with the investment groups parent company, Deutsch Bank.
HP vehemently denied the allegations, with Fiorina and other senior executives taking the stand last week to rebuff Hewletts claims. While HP executives did admit that their publicly statement earnings projections were more optimistic than assessments given in two internal reports, they countered that those assessments failed to take into account additional information and projections, and therefore offered an incomplete picture of potential savings and earnings.
Chandler found against every one of Hewletts arguments.
Hewletts attorneys hinged much of their arguments on two reports compiled by HPs “value capture team” that projected losses for the combined companies in 2003 would total $2 billion higher than the company had publicly forecasted. HPs senior executives testified that the reports offered an incomplete overview of the deal, and that the companys public statements offered broader, and more accurate, assessments.
Chandler ruled that HPs explanation was acceptable, and as such he found no grounds to support Hewletts charges that the company manipulated financial data in order to mislead shareholders.
Hewletts attorneys also were unable to convince the judge that HPs talks with Deutsch Bank, a transcript of which was submitted as evidence, went beyond mere lobbying and involved a threat of any kind.
“The plaintiffs can point to nothing in those exchanges that indicates a threat from management that future business would be withheld by HP from Deutsche Bank,” Chandler said.
Soon after Hewlett filed the lawsuit, two federal agencies, the U.S. Attorneys Office for the Southern District of New York and the Securities and Exchange Commission, have launched investigations to see whether HP coerced Deutsche Bank and another institutional shareholder, Northern Trust.
“Were glad that theyve come to a resolution so we can get on with business,” said David Lind, director of information technology at Allina Hospitals & Clinics, in Minneapolis. “Whats really important to us is what happens to the product lines. Theres a lot of brand loyalty.”
Allina uses Compaq storage, server and PCs customer, said Lind, adding that “the jurys still out,” about the long-term impact of the acquisition.
Related stories:
- Judge William Chandler IIIs Ruling (.pdf)
- HP Appoints 1,000 Managers
- Combined Company Ready: Fiorina
- HP Names 150 Execs to Leadership Roles
- HP/Compaq Executive Appointments
- Photo Gallery: Hewlett, Fiorina In and Out of Court
- Special Report: HP Courts Compaq