Judge clears HP-Compaq merger

In the end, Walter Hewlett just didn't have enough solid evidence to prove HP

misled its shareholders, according to Delaware Chancery Court Judge William

Chandler who threw out Hewlett's lawsuit against the HP-Compaq shareholder

election.

Chandler said Hewlett failed to meet the burden of proof on both points in

the lawsuit. ''The plaintiffs can point to nothing in those exchanges between HP

executives and Deutsche Bank that indicates a threat from management that future

business would be withheld by HP from Deutsche Bank and there is no indication

that the proxy working group at Deutsche Bank believed its discretion had been

limited by such a threat,'' Chandler wrote about Hewlett's claim that HP had

coerced Deutsche Bank into changing its vote on 25 million shares.

On the issue of HP misleading investors, Chandler wrote, ''I conclude that

plaintiffs have failed to prove that HP disseminated materially false

information about its integration efforts or about the financial data provided

to its shareholders."

Chandler's ruling comes as a big relief for HP CEO Carly Fiorina who fought

hard to get shareholders to approve the merger. Eventually, investors approved

the deal by a margin of only 2 per cent. The ruling also cleared Fiorina of

lying or other wrongdoing. "Members of HP's senior management testified

credibly, in accordance with the evidence and without exception," Chandler

wrote.

Because HP shareholders voted last week to oust Hewlett from the HP board,

the company will be devout of any member of the founding families on its board

of directors since David Packard and William Hewlett founded the company in the

late 1930s.

Hewlett said he was disappointed but grateful for the chance to have pleaded

his case. "My involvement with HP will not end today." HP officials

were glad the legal battle with Hewlett appeared to be over and won.

"Clearly we are gratified and it is time we had the opportunity to move on.

The ruling speaks for itself," said HP spokeswoman Rebeca Robboy.

Last week HP announced it has chosen May 7 as the official day HP and Compaq

will merge as one and produce the world's second largest computer technology

company. Almost immediately, HP will begin laying off between 15,000 and 24,000

workers who are no longer needed following the merger. On Wall Street investors

reacted to the news by selling more of their HP shares which are now trading

below $17, down from $35 at the time of the merger announcement last September.

Although the US Justice Department and Securities & Exchange Commission

have also opened investigations into allegations HP manipulated the shareholder

vote, the outcome of the Delaware lawsuit will likely put a quick end to those

cases as well, Chandler did put a legal question mark behind the actions by

Deutsche Bank's investment bankers who had pushed for their asset management

colleagues to listen to a last-minute presentation from HP about the merits of

the merger. "This fact raises clear questions about the integrity of the

internal ethical wall that purportedly separates Deutsche Bank's asset

management division from its commercial division," Chandler wrote.

One of the companies that believes it stands to benefit from the HP-Compaq

merger is Dell Computer. Dell CEO Michael Dell said he expects his company to

take valuable market share away from Hewlett-Packard and Compaq while those two

rivals struggle for the next couple of years to make the merger work.

Dell said PC buyers are reluctant to order from Hewlett-Packard and Compaq

because of the scale and complexity of the planned merger. "We're very much

relying on gaining market share," Dell recently raised its revenue forecast

to about $7.9 billion for the quarter ending May 3, saying it had gained new

business by keeping prices low.