Features

SAN JOSE — The fight against the computer industry’s biggest merger landed in court Thursday, with dissident director Walter Hewlett accusing Hewlett-Packard Co. of improperly enticing a big investor to back HP’s $19 billion buyout of Compaq Computer Corp. 

In an unusual move against a company by one of its own directors, Hewlett claimed the investment arm of Deutsche Bank originally voted 25 million shares against the deal, but switched 17 million at the last minute after HP threatened to take future business away. 

Hewlett also said HP misled investors about the progress of its plans to integrate its massive organization with Compaq’s. He said HP executives lied about their ability to achieve the deal’s financial targets without exceeding their prediction of 15,000 job cuts. 

The lawsuit asks the Chancery Court in Wilmington, Del., to invalidate last week’s extremely close vote by HP shareholders and declare the merger defeated or order a new election. HP and Compaq are incorporated in Delaware and the votes are being counted there. 

HP pledged to vigorously battle the suit, which it said was “without merit.” 

“We find it regrettable that Mr. Hewlett has chosen to resort to baseless claims without regard to the impact of his false accusations on HP’s business reputation and employees,” the company said in a statement. Spokeswoman Judy Radlinsky refused further comment. 

Hewlett, who is the eldest son of one of HP’s co-founders and heads the family’s charitable foundation, also declined comment. A Deutsche Bank representative did not return telephone messages seeking comment. 

Hewlett’s suit opened a new chapter in a vicious proxy fight and one of the closest corporate elections in years. It also leaves the future of the two companies in limbo. 

“The major concern we have is that if this lawsuit hangs on for a month, two months, six months, it essentially paralyzes these two companies,” said analyst Paul McGuckin, a vice president with Gartner Inc. “Their biggest problem is that their competitors are already trying to dump all sort of fear, uncertainty and doubt on their customers. This just makes their jobs that much easier.” 

HP, which wants to buy Compaq to bolster its technology offerings for corporate customers, claimed March 19 that a preliminary tally of its shareholders’ vote showed the deal had been approved by a “slim but sufficient margin.” 

Hewlett said the vote was too close to call. His lawsuit claims HP’s edge appears to be less than 1 percent of HP’s 2 billion shares, meaning the alleged late switch by Deutsche Bank could have affected the outcome. 

Official certification of the vote is expected to take weeks, while an independent proxy counting firm verifies each vote. HP and Hewlett also can challenge whether the proper people signed certain ballots. 

“In disputes this close and with questions over who voted and how they voted, (a lawsuit is) inevitable,” said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. “The uglier they get, the more they end up in court.” 

The five judges on the Delaware Chancery Court are experts in corporate law and are among the country’s best business judges, Elson said. There have been cases in which the court disallowed proxy votes it found were improperly cast, he added. 

As of Dec. 31, Deutsche Asset Management was HP’s 14th-largest shareholder, with 1.31 percent of its stock. Originally, Hewlett said, Deutsche money managers submitted their proxies against the merger. 

But on March 15, four days before the shareholder vote, HP opened up a multibillion-dollar line of credit, with Deutsche Bank among the financiers. Such deals are lucrative for banks. 

On the morning of the March 19 shareholder vote, “Deutsche Bank was led to understand that if it did not switch its votes in favor of the proposed merger, its future business dealings with HP would be jeopardized,” the lawsuit said. Those “enticements and coercions” defrauded and disenfranchised HP stockholders, Hewlett claimed. 

Hewlett believes the lobbying was so intense that HP chief Carly Fiorina delayed the start of the shareholder meeting to await word from Deutsche Bank. HP has said the meeting was delayed so investors could have time to reach the auditorium from distant parking lots. 

Compaq shares fell 15 cents to $10.45 in afternoon trading on the New York Stock Exchange. HP stock rose 17 cents to $17.94. 

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On the Net: 

http://www.hp.com 

http://www.compaq.com 

Hewlett’s opposition site: http://www.votenohpcompaq.com