Wednesday, March 20, 2002

HP declares proxy win

Compaq deal angers some investors

By Brian Bergstein
The Associated Press

        CUPERTINO, Calif. — Hewlett-Packard Co. chief Carly Fiorina claimed victory Tuesday in the nasty proxy fight over the $20 billion purchase of Compaq Computer Corp., but dissident director Walter Hewlett insisted the vote remained too close to call.

        The claim followed a two-hour shareholder meeting in which Ms. Fiorina was booed and Mr. Hewlett received a standing ovation as they made last-minute appeals over the fate of what would be the computer industry's biggest merger.

        Ms. Fiorina, a tenacious manager who has staked her reputation on the merger, told a news conference that HP's proxy solicitor had assured her that shareholders narrowly approved it.

        “We think we have a slim but sufficient margin, and we think it's important to let people know that,” she said.

        Mr. Hewlett, who had led a five-month fight against what he considered an ill-advised deal that would weaken the technology stalwart his father co-founded, called the claim of victory premature.

        “In a proxy contest this close, where stockholders are changing their votes right up until the closing of the polls, it is simply impossible to determine the outcome at this time,” he said.

        It will take several weeks to determine the official result of what appeared to be the closest corporate election in years. Independent proxy counters must verify each vote, and each side can challenge whether the proper people signed certain ballots.

        Compaq shareholders were expected to easily approve the deal at a Houston hotel today.

        HP's claim was something of a surprise because when the day began nearly one-fourth of HP shares were publicly in Hewlett's camp and less than 10 percent had come out in favor of the deal.

But HP had claimed for a while to have a “silent majority.”

        The merger would wed a 64-year-old Silicon Valley icon grounded in digital imaging with the No. 2 personal computer maker. The deal has already received approval from U.S. and European regulators.

        “We are very close to making this merger a reality,” said Compaq CEO Michael Capellas, who would be second-in-command at the new HP.

        HP shares fell 45 cents, more than 2 percent, to close at $18.80 on the New York Stock Exchange, where Compaq jumped 78 cents, 7.5 percent, to $11.14.

        HP and Compaq say the deal is essential for their survival in the consolidating computing industry. They believe that together they can dramatically improve their end-to-end packages for corporate customers, improve their slumping personal-computer divisions and generate $2.5 billion a year in cost savings.

        Mr. Hewlett contends HP is overpaying for Compaq, would get bogged down selling low-margin personal computers and services and can't afford to risk the complex integration of the companies' huge organizations.

        That disagreement turned into one of the most intriguing episodes in high-tech history, largely because HP is one of Silicon Valley's marquee institutions and its late founders are still revered as visionary engineers.

        Ms. Fiorina, who was hired to lead the giant computer and printer maker in 1999 and ordered to shake the company up, is expected to resign if the deal fails.

        She had to overcome an initially hostile reaction from Wall Street after the Compaq deal was announced Sept. 3, and then the opposition of Hewlett and Packard family interests with 18 percent of HP stock. Several large pension funds also opposed the deal.

        “She took a strong position based on what she believed in, and it's to her credit that she followed through whether she wins or loses,” said Forrester Research analyst Charles Rutstein. “This has been a polarizing battle.”

        With the stakes so high, HP and Walter Hewlett each spent tens of millions of dollars to deluge HP's 900,000 shareholders with letters, advertisements, telemarketers' phone calls and multiple ballots.

        “I feel like I stepped out of my life and into an alternative universe, if you will, but it was definitely a cause that needed to be taken up,” Mr. Hewlett said after Tuesday's meeting.

        Most investors mailed in their votes before the meeting, but many began lining up at dawn outside a Cupertino auditorium to cast ballots in person and watch Ms. Fiorina field questions.

        Gary Masching, who works for HP spinoff Agilent Technologies Inc., wore a green cape — in honor of Mr. Hewlett's green proxy cards — and tapped out a march on a drum while shareholders lined up.

        He said he decided to oppose the deal when HP derided Mr. Hewlett as a “musician and academic” without the business acumen to question the Compaq deal.

        Mr. Hewlett spoke briefly from a microphone on the floor of the auditorium, thanking HP's employees and stockholders for listening to his arguments.


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