HP/COMPAQ: Hewlett fights on despite initial vote tally

The Delaware Chancery Court has apparently become Walter Hewlett's last hope to stop the Hewlett-Packard Co./Compaq Computer Corp. merger now that the initial tally shows shareholders in support of the deal by 45 million votes.

However, analysts are saying don't bury him yet.

"We never want to underestimate the power of a Delaware judge, and we are not ready to sign off on this," said Tom Burnett, president of the New York-based Merger Insight, an affiliate of discount brokerage Wall Street Access.

Burnett said he has a great deal of respect for the courts in Delaware, where Hewlett has filed suit against HP to stop the merger, and until the trial is over, no one should be making predictions.

"It would be naive to say that the deal is over and the deal is done," Burnett said.

Yesterday, HP announced that the initial vote tally tabulated by Newark, Del.-based independent vote-counting firm IVS Associates Inc. showed it won the election by 45 million votes. The vote was 837.9 million in favor of the merger and 792.6 million against.

HP's announcement was quickly followed by a statement from Hewlett saying he would fight on.

"As we stated previously, the margin of this vote was extremely narrow," Hewlett's statement reads. "These are preliminary results, and both sides will have the opportunity to examine and challenge the proxy tabulation prior to final certification.

"In addition," the statement continues, "the pending litigation with Hewlett-Packard in the Delaware Chancery Court must be heard before any final outcome is determined."

Hewlett filed suit against HP in March saying that it had coerced Frankfurt-based Deutsche Bank AG to switch 17 million votes in favor of the merger in exchange for the company making the bank the co-arranger in a multibillion-dollar line of credit -- a charge both HP and Deutsche Bank reject.

Hewlett also charges that HP's management acted improperly and misled shareholders into voting for the merger, a charge that is also rejected by HP.

"I think the burden of proof will be extremely high and it will be very, very tough for him," said Richard Chu, managing director at New York-based SG Cowen Securities Corp.

At least one analyst wanted the battle to end.

"It is very bad news that this thing keeps getting drawn out because of all the energy that is getting wasted on this," said Jonathan Eunice, an analyst at Nashua, N.H.-based Illuminata Inc. "A large majority of the employees at HP and a large majority of the employees at Compaq are sitting around following this thing in the newspapers and wondering, 'Are we going to merge or not?' They aren't focusing on the needs of their customers."

Eunice said regulators both in the U.S. and the European Union have approved the merger, and now a majority of shareholders have done the same. It's time for Hewlett to move on, he said.

"Of course their competitors love this," Eunice said. "I can see Sun [Microsystems Inc.] sitting around saying: 'A court case, excellent; the U.S. Attorney is looking into it, great.'" The trial is scheduled to begin Tuesday in Wilmington and is expected to last three days.

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