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Letter from Walter Hewlett to HP shareholders

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CIOL Bureau
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Dear Fellow Hewlett-Packard Stockholder:

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Join us in voting against the merger of Hewlett-Packard with Compaq. We are

convinced that this is a bad transaction for all HP stockholders.

The William R. Hewlett Revocable Trust, like you, has a big stake in the

future of HP, and we are urging you to vote against this transaction. The

William and Flora Hewlett Foundation and the William R. Hewlett Revocable Trust,

which together own approximately $2.4 billion in HP shares, and the David and

Lucile Packard Foundation, which owns approximately $4.4 billion in HP shares,

have already indicated their opposition to the merger.

DON'T VOTE FOR A BET-THE-COMPANY TRANSACTION.

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HP is a strong company. HP is not in crisis. Don't bet the Company on the

Compaq transaction. It would be a mistake to become the world's largest

commodity computing company, more than doubling HP's exposure to the troubled PC

business. That would be a crisis.

* Why would you want to invest in Compaq, whose own CEO, Michael Capellas,

admits that 45% of its revenues are in a "rotten business?"

* Why would you want to invest in a company where 64% of its total revenues

and 83% of its hardware business are in low-end commodity computing?

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* Why would you want to invest in a business that suffers from over capacity

and is plagued by reduced demand on a global basis?

* Why would you want to invest in the combined HP-Compaq company when

antitrust regulators don't "expect HP-Compaq to derive any real benefits

from this merger, which is why they're approving it?"

* Why would you want to pay 51.6 times 2002 earnings for a company that

mostly sells PCs and low-end servers and is losing money in those businesses?

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AND WHY ON EARTH WOULD YOU PAY $25 BILLION FOR IT?

You wouldn't. And you shouldn't. That is why we urge you to vote

"AGAINST" the proposed transaction and return the GREEN proxy card.

Neither HP management nor Compaq management has ever successfully integrated

a large computing acquisition, let alone a transaction of this size. Why would

you trust them when Compaq has lost approximately 60% of its shareholder value

since its attempt to integrate its $9.4 billion acquisition of Digital Equipment

Corporation (DEC) in 1998? HP assumes successful execution of the Compaq

transaction, believing that they will succeed where others have failed. Why

should you bet your company on that?

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Wall Street analysts' forecasts, industry precedent transactions and careful

analysis of the pro forma economic impact of the merger all reveal the flaws in

this proposed transaction. Our analysis confirms that the financial effect of

this transaction will be negative for HP stockholders -- as the market also

clearly signaled when it reacted very negatively to the announcement of the

transaction.

The market has made it resoundingly clear that this combination destroys

value for stockholders:

* HP's stock dropped 18.7% when HP announced the proposed Compaq transaction.

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* HP's stock went up 17.3% when we announced our opposition to the proposed

Compaq transaction.

  • HP's stockholders have lost $7 billion relative to an index of comparable

    companies since the proposed Compaq transaction was announced.

DON'T VOTE FOR THIS MERGER UNLESS YOU WANT TO RISK LOSING A LOT MORE.

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HP stockholders have a clear choice: vote to merge with Compaq, struggle to

survive the turnaround of the PC business and re-run the failed Compaq/DEC

strategy or vote "AGAINST" the merger and tell the HP board and

management to do something a lot smarter.

WE ARE CONVINCED THERE IS A BETTER PATH -- HP was on it when the company spun

off Agilent. At that time, the Company noted that it was "creating two

distinct and strategically focused enterprises ... able to better focus on

growth in their individual markets ... well-positioned to build value for

their stockholders, customers and employees."(4)

To stay on that path, HP must:

* focus on technology and innovation -- not merger integration;

* focus on imaging and printing -- not commodity computing;

* focus on areas of strength in the enterprise -- not commodity computing;

* focus on fixing problems -- not creating them;

* focus on building good businesses -- not acquiring or expanding bad ones;

* focus on treating employees as assets -- not liabilities; and

* FOCUS on stockholder value -- not bigger, but better.

HP SHOULD FOCUS ON CREATING VALUE WITH ITS PROFITABLE BUSINESSES AND SOLVING

ITS OWN PROBLEMS -- NOT DILUTING VALUE AND TAKING ON COMPAQ'S MUCH BIGGER

PROBLEMS.

HP has many strengths to build on -- a leading position in the very

attractive imaging and printing market, a great consumer brand, a strong

reputation with enterprise customers and a prodigious source of innovation in HP

Labs. HP's results in the fourth quarter, and we expect, its upcoming quarter to

be announced on February 13, demonstrate the underlying strength of the company,

pointing out the inherent fallacy of a bet-the-company merger with Compaq.

Remember that HP had operating cash flow of $1.8 billion in the fourth quarter

alone.

With hard work, strong leadership and a clear focus on stockholder value, HP

can do far better for its stockholders than acquiring Compaq.

THIS VOTE IS ABOUT STOCKHOLDER VALUE -- NOTHING MORE, NOTHING LESS.

We strongly recommend that you vote "AGAINST" the proposed

transaction and return the GREEN proxy card. The future of HP is in your hands

and we believe that future will be best served without the burden of acquiring

and integrating Compaq. Your choice is clear.

Thank you for your support,

Very truly yours,

Walter Hewlett

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