HP Won't Renominate Walter Hewlett To Board

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

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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.

An 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 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.

Both Compaq and Hewlett-Packard shares were slightly higher in afternoon trading amid a general market uptick. Compaq shares were up 10 cents at $10.55 and Hewlett-Packard shares up 7 cents at $18.01 in New York Stock Exchange trade.

+REUTERS

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