An Agitated Fiorina Defends HP Moves

Under an intense courtroom grilling last week, a combative and visibly agitated Carly Fiorina staunchly rejected accusations that Hewlett-Packard Co. misled and coerced shareholders into supporting the company's $19 billion buyout of Compaq Computer Corp.

Under an intense courtroom grilling last week, a combative and visibly agitated Carly Fiorina staunchly rejected accusations that Hewlett-Packard Co. misled and coerced shareholders into supporting the companys $19 billion buyout of Compaq Computer Corp.

The HP chairman and CEOs 7 hours of testimony highlighted last weeks showdown between HP management and dissident director Walter Hewlett, whose campaign against the controversial deal has shifted from the boardroom to the courtroom.

Now the largest merger in high-tech history will be decided by Judge William Chander III, who said he will rule quickly given HPs desire to launch the combined company May 7. His options include nullifying the shareholder vote, tossing out only those votes cast by a major institutional shareholder Hewlett alleges HP executives improperly pressured or leaving everything as is.

In court, Fiorina and her fellow executives repeatedly denied under oath Hewletts allegations that they understated projected financial losses to win shareholder support and that the company threatened to withhold business from Deutsche Bank AG if it failed to support the buyout in a March 19 vote.

The case is being tried in Chancery Court here in Delaware, where HP is incorporated.

In seeking to prove their case, Hewletts attorneys revealed internal reports that projected higher financial losses as a result of the buyout than public statements issued by HP indicated.

In addition, Hewletts lawyers revealed personal notes and memos written by senior Compaq executives expressing their fears about the buyout.

"Sobering thoughts," stated one entry from Compaq Chairman and CEO Michael Capellas journal in March. "We are about to start one of the most historic periods in business history. ... At current course and speed, we will fail."

Capellas also received a memo in March warning that integration efforts were not going well. The note from Jeff Clarke, Compaqs chief financial officer and co-leader of HPs integration teams, stated, "It is ugly. Both companies are deteriorating."

Clarke downplayed the message in his testimony, contending it merely reflected his frustration at the time in getting business units to embrace his targets. He said he never doubted the buyout was in the best interests of the companies and shareholders.

But it was Fiorinas testimony that dominated the trial as Hewletts attorneys repeatedly questioned the chief executive about differences between internal revenue projections and HPs more optimistic public statements.

Fiorina explained numerous times that the internal reports reflected only "snapshots" of where the business units were at that time and that they failed to take into account other projected financial and economic data.

But her temper flared after Hewlett attorney Stephen Neal repeatedly questioned her about why HP publicly projected financial losses that were $2 billion less than internal forecasts and why those internal reports were not revealed to HPs board or shareholders.

"Youre accusing a CEO of a publicly traded company of lying," Fiorina lashed back from the witness stand.

"Im only asking you questions right now," Neal responded.

Fiorina restated that the internal reports constituted only one part of the companys planning efforts. She added that the reports were not widely distributed because they did not provide a complete picture of integration goals and projections.

Fiorina was also grilled about Hewletts accusations that she threatened to withhold business from Deutsche Bank if the companys investment subsidiary failed to vote millions of HP shares in favor of the merger. In a transcript of a conference call Fiorina had with Deutsche executives on March 19, the day of the shareholder vote, the HP executive said the buyout "is of great importance to our ongoing relationship."

After the meeting, Hewlett claims, the banks subsidiary, Deutsche Asset Management S.A., voted 17 million shares in favor of the buyout.

When asked under oath whether she was implying that the bank would lose HPs business if its subsidiary voted against the deal, Fiorina responded, "Absolutely not."