Hewlett Heir's Letter Widens Anti-Merger Campaign

Walter Hewlett, son of founder Bill Hewlett, summarized his well-publicized arguments in the letter dated Jan. 15, and responded to criticism that he had offered no alternative to the $24.4 billion deal, as he rallied support for an expected proxy fight.

Roughly a quarter of HP stock is held by retail investors who so far had not received any direct communication from opponents of the deal. HP management plans to hold a vote on the merger in late February or sometime after.

Hewlett said the merger would bloat HP's commodity-like business of personal computers and dilute the value of its valuable printing franchise, and he said the tough integration risks were unacceptable.

Management has responded that the deal would add $5 to $9 per share in value to the combined company, in part by boosting the high-end computer and services franchises.

Management has also said that Hewlett, a board member who initially approved the plan but turned against it and took his fight public in November, has not offered an alternative, an issue which he addressed in his letter.

"We want it clearly understood that we are not advocating a 'status quo' strategy for Hewlett-Packard. We advocate building on Hewlett-Packard's strengths and dealing with its problems," he said, referring to the "troubled" personal computer business.

"Hewlett-Packard needs to focus on what it does well, and to change and grow organically, with targeted tactical acquisitions--a strategy that has proven to be successful in the technology industry," he added.

HP dismissed the letter.

"It is a rehash of the same faulty financial assumptions and analyses. It's based on a static view of the industry and the company, and once again fails to offer any alternative to create customer and shareholder value," said spokeswoman Rebeca Robboy.

Founding family members and trusts with 18 percent of HP stock oppose the deal, and management has pinned its hopes on winning merger approval through support from the institutional stockholders who control a majority of shares.

It has also targeted wider support with an advertising campaign.

HP shares were down 29 cents to $22.79 and Compaq was up 3 cents to $11.43, both outperforming other computer maker stocks in afternoon trade on the New York Stock Exchange.

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