The most vocal critic of the controversial merger of Hewlett-Packard Co. and Compaq Computer Corp. this week filed a proxy statement outlining his early opposition to the deal.
Walter Hewlett, son of HP co-founder William Hewlett and a member of the companys board of directors, said in the document filed with the U.S. Securities and Exchange Commission on Thursday that he has opposed the proposed $25 billion deal since first hearing about it in May.
Hewlett reiterated the criticisms that he first aired publicly in November, saying that combining the two companies would increase HPs exposure to the "mature and unprofitable PC business" at the expense of its more profitable businesses, particularly imaging and printing.
"These concerns were, and still are, focused on his belief that the proposed merger will destroy stockholder value," the proxy statement reads.
The document was filed in hopes of encouraging other HP shareholders to vote against the proposed merger. A vote has not been scheduled, although it is expected to take place in late January or early February 2002.
According to the agreement, should the deal fall through, HP would owe Compaq $675 million.
The proposed merger has gotten flak since it was first announced Sept. 3. Analysts and investors immediately jumped on the deal, saying it threatened to create a massive, unwieldy company that would struggle to integrate the offerings from both HP and Compaq.
The resulting company, which would retain the HP name, would have a work force of about 130,000 employees based in 160 countries and annual revenues of about $87.4 billion. HP Chairman and CEO Carly Fiorina has said the merger would create a powerful new competitor in the high-tech arena.
The initial criticism sparked a stock sell-off that sent HP shares to a multi-year low, a drop cited by Hewlett in his SEC filing. Between Sept. 3 and Nov. 5—as executives with both HP and Compaq mounted a PR campaign in favor of the deal—HP stock price dropped from $23.21 a share to $16.89, a loss of about $12.3 billion in market capitalization, he said.
On Nov. 6, Hewlett announced that he and his sisters, as well as the Hewlett Foundation, opposed the merger. That same day, David W. Packard, son of HP co-founder David Packard, announced that he, too, opposed the merger. Once that opposition was made public, HP stocked jumped to $19.81, gaining back about $5.7 billion, according to the proxy document.
Together, the families of both co-founders—as well as the Hewlett Foundation and the Packard family foundation—control about 18 percent of HP shares. Analysts have said opposition from the families could force the two companies to rework the deal if it doesnt kill the merger altogether.
Before Hewlett filed his latest statement with the SEC, sources with HP, of Palo Alto, Calif., and Houston-based Compaq said they knew early in the process that Hewlett was hesitant about the merger. However, they were taken aback by the vehemence of his statements since Nov. 6.
But Hewlett, in his proxy statement, said he repeatedly voiced his concerns during meetings last summer. In a meeting Aug. 31, Hewlett said he made it clear that he opposed the deal, but that Larry Sonsini, an outside lawyer for HP, pulled him aside and told him that without unanimous board approval, HP would be forced to renegotiate with Compaq, which could lead to a higher price. Sonsini also told Hewlett that he could vote for the deal as a board member, but against it later as a shareholder.
Hewlett said in his statement that he voted for the deal during the board meeting to save HP money should the merger go to a stockholder vote.
However, during a Sept. 3 telephone call in which the merger was approved by the HP board, Hewlett said he "informed the Board that he might not support the proposed merger as a stockholder, and that, if the vote were to occur that day, he would vote against the proposed merger as a stockholder," the proxy states.
Also signing on onto the proxy was Edwin van Bronkhorst, HPs former chief financial officer, and the William R. Hewlett Revocable Trust.
Additional reporting by Ken Popovich.