HP Vs Hewlett fight continues in 2002

2002 Started where 2001 left off in terms of the war of words between

Hewlett-Packard and HP director William Hewlett who is opposing the HP-Compaq

merger. Hewlett is waging a proxy battle to get the merger canceled by

shareholders.

This week, Hewlett responded to a publicly published letter from his fellow

Hewlett-Packard directors that scolded Hewlett for his opposition to the merger.

Hewlett said the letter was a carefully constructed assortment of fine lines and

half truths. Hewlett said he was tricked into voting for the merger after HP

lawyers told him that the deal required unanimous Board approval and that the

merger would be approved with or without his vote.

Hewlett also restated the reasons for his opposition to the merger.

"This transaction remains fundamentally flawed because the proposed merger

would significantly dilute Hewlett-Packard's stockholders' interest in the

profitable imaging and printing business, and significantly increase exposure to

an unprofitable PC business."

In addition, Hewlett said the proposed merger will dramatically increase

Hewlett-Packard's market position in unattractive lower-end, commodity

businesses, such as PCs. It will also not materially improve Hewlett-Packard's

market position in mid-range and high-end servers and high-end services, and do

little to increase Hewlett-Packard's consulting and outsourcing capabilities.

Also the integration risk of the combination is substantial. "No

significant combination involving a computer company has ever met expectations;

and the proposed transaction is financially unattractive to Hewlett-Packard

stockholders. The market has twice made resoundingly clear that this combination

destroys value for Hewlett-Packard stockholders. This transaction is clearly bad

for stockholder value and I urge the Board to listen to what stockholders are

saying."

To date, HP has refused to set a date for shareholders to vote on the merger.

Increasingly this is seen as confirmation that HP does not think it has the

votes needed to approve the merger. But as the battle drags on, investors are

also getting increasingly nervous about the prolonged distraction the merger has

on company management at an economic time that is challenging enough for any

management team.