HP/COMPAQ: HP, Hewlett bickering gets specific

The board of Hewlett-Packard Co. (HP) and board member Walter Hewlett continued to trade blows Monday over HP's proposed merger with Compaq Computer Corp., which Hewlett opposes.

The public accusations have become increasingly specific, with HP's board alleging that Hewlett knew what he was doing when he initially voted in favor of the merger in September.

In a letter to Hewlett that is included in a filing to the U.S. Securities and Exchange Commission (SEC), HP's board said: "We know you to be an independent thinker and an experienced board member who knows very well what your fiduciary duties are -- to vote as a director in the best interests of HP shareowners. We all assumed that you were upholding those duties when you willingly voted in favor of the merger as a director. To suggest that you were pressured into approving the merger is inaccurate and inappropriate."

In a statement issued in response to the SEC filing, Hewlett said that HP's letter was "a careful construct of fine lines and half truths."

"Despite my known opposition to the transaction, management and its representatives negotiated a contract that required unanimous board approval," Hewlett said in the statement. "I was advised by company counsel that this transaction would be approved with or without my board vote, and that I could approve it as a director and still vote against it as a stockholder."

Hewlett also said he told the board in a telephone call on Sept. 3 that he would oppose the merger as a stockholder if it were to be voted on that day, a statement which HP challenged: "Contrary to your public assertions otherwise, neither the board nor management were informed how you would vote your shares until one half hour before your public announcement on Nov. 6, 2001."

Aside from this public bickering, HP and Hewlett reaffirmed their respective views of the merger.

"We collectively concluded that the merger represented by far the single best strategic alternative for the company," HP's board said in the SEC filing. "Quite frankly Walter (Hewlett), you have never offered an alternative strategy that we all haven't debated and rejected. Our strategy is compelling and we remain confident in management's ability to execute on the plan that we all debated and endorsed."

Hewlett, however, continues to oppose the deal.

"The market has twice made resoundingly clear that this combination destroys value for Hewlett-Packard stockholders," he said in his statement. "Nothing in the board's letter will distract Hewlett-Packard stockholders from focusing on the real issue, nor change this bad transaction into a good one. This transaction remains fundamentally flawed."

Hewlett, son of HP co-founder William Hewlett, and other heirs of Hewlett and co-founder David Packard have opposed the merger, putting the deal in jeopardy with the voting power of their shares and those of associated foundations, which hold large chunks of the company's stock.

Hewlett and other heirs have sent a proxy statement to the SEC to ask shareholders to vote against the deal at an upcoming special HP shareholders meeting.

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