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    Enron Could Impact HP Suit

    By
    eWEEK EDITORS
    -
    April 15, 2002
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      The shadow of the Enron Corp. scandal could fall on Hewlett-Packard Co. when HP defends its proposed buyout of Compaq Computer Corp. in court next week.

      The Enron failure has been blamed largely on mismanagement by corporate executives. As a result, courts may give more weight to claims brought by shareholders against company leaders than they would have a year ago, according to one legal expert.

      “In the context of post-Enron America … its important for the state of Delaware to show its laws play their part in making sure corporations are run in the best interest of shareholders,” said Charles OKelly, a professor at the University of Georgia, in Athens, and an expert on Delaware laws.

      Dissident board member Walter Hewlett, in a lawsuit filed March 28, claims HP executives improperly pressured a major institutional shareholder into supporting the deal in the shareholder vote March 19. The suit was filed in Delaware because HP, originally incorporated in California in 1947, reincorporated in Delaware in 1998.

      Judge William Chandler of the Delaware Chancery Court last week rejected HPs request to dismiss the case, allowing the suit to move to trial April 23 and possibly putting the fate of the $19 billion proposal in the hands of the court. The move into the courtroom puts the deal into an even more perilous position and could mean that frustrated users will have to wait longer before finding out whether the technology they use will be phased out or left intact.

      In his lawsuit, Hewlett alleges that HP executives pressured Deutsch Asset Management, a subsidiary of Deutsch Bank AG, into voting 17 million shares for the buyout by threatening to withhold business from the bank. If Chandler finds in favor of Hewlett, he could have final say over the deal, experts say.

      “[Chandler] could order a wide variety of remedies, ranging from throwing out the disputed votes, calling for a revote, recounting the vote. He has broad, broad power,” said Charles Elson, director of the Center for Corporate Governance at the University of Delaware, in Newark.

      But to win, Hewlett must first prove his claim and show that the company knowingly gave investors false information about the deal.

      A California newspaper last week released the transcript of a voice message HP Chairman and CEO Carly Fiorina sent to Chief Financial Officer Robert Wayman two days before the vote in which she says they may need to “do something extraordinary” to gain the support of Deutsch Bank and another investor. While the message, confirmed as authentic by Wayman, showed HP planned to strongly lobby Deutsch Bank, it did not show that HP threatened to withhold business.

      For customers of HP, of Palo Alto, Calif., and Houston-based Compaq, the court battle is just the latest frustration in a series of delays as they wait to find out what products and services will be affected. “What it comes down to is that I do not have a year to wait for HP and Compaq to work out their internal issues,” said Michael Sherwood, CIO for the city of Oceanside, Calif., a Compaq customer who has begun buying more hardware from Dell Computer Corp.

      eWEEK EDITORS
      eWeek editors publish top thought leaders and leading experts in emerging technology across a wide variety of Enterprise B2B sectors. Our focus is providing actionable information for today’s technology decision makers.
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