HP/COMPAQ: Shareholder says no to taking over Compaq

Money management firm Brandes Investment Partners LP plans to vote its more than 1 percent of Hewlett-Packard stock against the proposed acquisition of Compaq Computer, Brandes confirmed Tuesday. The comments by Brandes, however, were not the only knocks on the deal Tuesday, as Walter Hewlett continued his battle against HP management.

Brandes is one of the largest institutional investors in HP. It said that challenging integration issues between the two computer makers prompted Brandes to vote against the deal and in favor of a stand-alone HP, according to a report by the Wall Street Journal. Brandes would favor an HP that concentrated on its enterprise product line and considered spinning off its lucrative printing and imaging business as opposed to the US$21.7 billion acquisition of Compaq, the paper reported.

"We are comfortable with what the Wall Street Journal reported," said a Brandes spokeswoman. "We have no further comment other than what has been reported."

San Diego-based Brandes held 1.27 percent of HP's shares as of Dec. 31, 2001, according to investment research company Multex.com Inc., making it the 11th largest institutional investor.

HP will hold a March 19 shareholder vote on the proposed deal. Although HP officials stand by the acquisition's merits, a number of parties have objected to the deal. Most notably, members of the Hewlett and Packard families have engaged in an aggressive media campaign against the deal. Family members and related organizations control close to 18 percent of HP stock.

Walter Hewlett, a company board member and son of one of HP's founders, has been the most vocal opponent of the acquisition and on Tuesday made another in a long string of filings to the U.S. Securities and Exchange Commission (SEC) opposing the merger. In the document, Hewlett alleged that HP is trying to "hide the ball" with regard to the compensation packages that Carly Fiorina, chairman and chief executive officer of HP, and Michael Capellas, chairman and chief executive officer of Compaq, would receive upon completing the deal.

Hewlett claims the companies considered rewarding Fiorina and Capellas with more than $117 million in compensation packages, but failed to disclose those potential post-acquisition costs and repeatedly changed its compensation-related disclosures about the deal. Under the proposal, including salaries, bonuses and stock options over two years, Fiorina would have received about $70 million and Capellas would have received more than $47 million.

However, HP has mounted its own media campaign in support of the acquisition, maintaining that a merger with Compaq would strengthen the company's hardware, software and services lines.

HP on Tuesday quickly countered Hewlett's claims, saying in a statement that the board will consider employment agreements after the close of the deal. Hewlett is a member of HP's compensation committee and should be aware of this policy, HP argued.

The company claims previous discussions about compensation deals for executives at HP and Compaq were aborted. These past discussions would not "constitute minimum or benchmark terms for future agreements," according to the statement.

"It is bizarre that Walter Hewlett is disseminating misinformation about nonexistent employment terms for HP and Compaq senior executives -- while at the same time, as a director, he actively supported the Board's conclusion that more research and analysis is necessary before HP can even begin to formulate appropriate market-based executive compensation proposals," HP said.

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