HP won't reappoint Walter Hewlett to board

SAN FRANCISCO/NEW YORK: Hewlett-Packard Co. on Monday said it would not

renominate Walter Hewlett to its board, after he sued to stop its $19 billion

plan to buy Compaq Computer Corp., effectively severing ties with one of the

founding families of Silicon Valley,

Walter Hewlett, son of HP co-founder Bill Hewlett, filed a lawsuit last week

to block the computer and printer maker's acquisition of Compaq, alleging that

HP bought votes and misled a key adviser to seal the deal. Palo Alto,

California-based HP said in a statement the board had voted to nominate Hewlett

despite his four-month battle to stop the merger, but reversed itself after

Hewlett filed suit, accusing the company of coercing Deutsche Bank to support

the deal and withholding information from shareholders.

"His recent actions have again violated basic principles of trust,"

said Sam Ginn, the head of HP's nominating committee. Walter Hewlett, who was

the last member of the Hewlett and Packard families to sit on the board, said he

regretted the board's decision. The families control 18 percent of HP's stock.

"It is unfortunate that the HP board has seemingly missed what the

company's stockholders have clearly recognized: that dissent is not disloyalty,

that healthy boards need not agree on every issue and that while the management

and board may run the company, the stockholders are the true owners of a

company," he said in a statement.

Hewlett claimed that Compaq's low-margin PC business would weigh on HP's

profitable printing franchise. HP chief executive Carly Fiorina said it would

create a company large enough to compete with No. 1 computer company

International Business Machines Corp.

Ignoring advice



In its report blessing the proposed merger, proxy advisory firm Institutional
Shareholder Services -- credited with influencing enough votes to swing the

merger in favor of the plan -- encouraged HP to keep Hewlett.

"I think that certainly for a lot of people it is a significant loss for

the board," said Ram Kumar, ISS' chief analyst on the HP report. "We

believe it is good to have on the board directors who are not afraid of

questioning management, and not to say the other directors are unwilling to do

that, but clearly Walter Hewlett's credibility in this area is pretty high. He's

the guy who is willing to ask the tough questions."

He said that HP's bylaws allowed shareholders to pool votes in favor of

candidates, so that a few major shareholders could effectively get Hewlett on

the board. A HP spokeswoman said that would not be possible this year, however,

since the time limit for alternate nominations to be voted on at the April 26

meeting had passed.

Hewlett's crusade against the deal reached the point where he was no longer a

constructive board member, one corporate governance expert said. What HP needs

for the proposed deal to be a success now is a board that backs the combination,

said Thomas McLane, vice chairman of the Directorship Search Group in Greenwich,

Connecticut, a corporate governance and executive search firm.

"Assuming the deal is going to go through and they are going to be a

combined company, I think it would be very helpful to have a board that's made

up of people whose goal it is to see that it works well," McLane said. One

small investor who fought loudly against the deal said the decision discounted

the value of critical directors.

"In a world where investors are craving independent directors that are

willing to question management, this flies in the face of that," said David

Katz, chief investment officer at Matrix Asset Advisors.

Hewlett filed suit last week against HP in Delaware Chancery Court in an

effort to prevent the deal, announced on Sept. 3, from going through. He alleged

that HP management bought votes in the contentious HP shareholder vote last

month and misled a key adviser about the deal.

HP has called the suit baseless. HP says preliminary estimates show it won

the shareholder vote while Walter Hewlett says the vote was too close to call

with a margin of victory of less than 1 percent. The final tally won't be ready

for several weeks.