HP slams Hewlett in letter to shareholders

Hewlett-Packard released a letter to its shareholders Friday, trying to persuade investors of the merits of the company's proposed merger with Compaq Computer Corp. and levelling harsh criticism against Walter Hewlett, the lone merger opponent on the HP board.

The letter comes as the latest salvo in an ongoing battle between HP executives who support the deal and objectors to the merger. Hewlett and other members of the Hewlett and Packard families, and organizations with which they are affiliated, have vowed to vote their shares against the merger. The current Hewlett and Packard family dissenters own close to 18 percent of the company's stock.

HP executives continued to champion the deal with Compaq as a way to improve the company's server, storage and management software businesses. In addition, HP claims it can save US$2.5 billion annually through improved operating efficiency, which would translate into gains of $5 to $9 per share, according to the letter.

The letter also attacked Hewlett's credentials as an opinion leader concerning the merger decision.

"Walter Hewlett, an heir of HP co-founder Bill Hewlett, is a musician and academic who oversees the Hewlett family trust and foundation," HP said in the letter. "While he serves on HP's Board of Directors, Walter has never worked at the company or been involved in its management. His motivations and investment decisions are likely to be very different from your own."

HP's own profile of its board, on its Web page, describes Hewlett as "an independent software developer and chairman, Vermont Telephone Company."

Hewlett filed his own objection to the merger earlier this week, sending a letter to the shareholders urging them to vote against the merger. He claimed the merger would create a company that is "less focused and more troubled." Hewlett originally voted in favor of the merger during a board meeting and then later decided the deal was not in the company's best interest.

HP, however, claims it had already reviewed the items to which Hewlett objected and decided that proceeding with the deal is still the right action.

"The problem isn't just that he is saying no to the merger -- he's giving us nothing to say yes to," the letter stated. "While opposing the merger, he has failed to propose any alternatives that your Board hasn't already analyzed, debated and rejected because they fail to create sufficient shareowner value."

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