HP: Hewlett Heirs Criticisms are Faulty

Hewlett-Packard Co. continues to try to counter growing opposition to its proposed buyout of Compaq Computer Corp.

Hewlett-Packard Co. continues to try to counter growing opposition to its proposed buyout of Compaq Computer Corp. Earlier in December, the company sent a lengthy report to shareholders that lashes out at dissident board member Walter Hewlett.

The 50-page report claims that the criticisms of Hewlett, son of HP founder William Hewlett, are based on "faulty financial assumptions" and that he "offers no alternatives to address HPs challenges and opportunities."

Debate over the controversial $25 billion deal, first announced in September, has intensified in recent weeks after the Hewlett and Packard families opposed the merger, vowing to vote their collective 17 percent share of HP stock against the move.

To salvage the deal, HP sent shareholders the detailed analysis of the merger, filled with charts and graphs designed to illustrate the benefits of combining the two companies. In the report sent to shareholders and filed with the Securities and Exchange Commission Dec. 19, HP sought to undermine Hewletts arguments against the deal, which he characterized as a misguided attempt to salvage the struggling company.

Overall, Hewlett contends the merger would increase HPs exposure to a slumping PC market, dilute the focus on its profitable printer business and cost the company billions of dollars to integrate the two businesses. However, HP said the merger would save the Palo Alto, Calif., company $2.5 billion annually and create a more formidable company able to leverage a broader array of products and services.

"We believe his recent opposition to the merger is based on a static and narrow view of HP and the industry, selectively ignores the synergies of this transaction, relies on faulty financial assumptions and analyses, and offers no alternatives to address HPs challenges and opportunities," HP said in a letter accompanying the report.

HP issued the report one day after Hewletts attorney accused a company executive of threatening shareholders to get them to approve the deal.

Hewlett reportedly objected to a quote attributed to HP board member Richard Hackborn in a New York Times story in which Hackborn said that shareholders "will have to get a board and a management" to fix HPs problems if the deal fails.

"This type of threat ... is shocking," Hewletts attorney, Stephen Neal, said in a letter to HP attorney Larry Sonsini. Sonsini called the assertions "incorrect and misleading."

While HP shareholders will vote on the merger in January or February, corporate customers can only watch. Nordstrom Inc. switched to Houston-based Compaq after having troubles with HP. Larry Shaw, PC coordinator for the Seattle company, said the deal could be beneficial, if done correctly.

"Compaq has some good things in their direct sales model where HP hasnt really done well," said Shaw, an eWeek Corporate Partner. "So there can be positives, as long as HP doesnt mess it up."