Final Chapter Opens In Hewlett's Bid to Scuttle HP-Compaq Deal

With the official certification of HP's shareholder vote on the deal expected within days, the judge is considering what could amount to dissident HP director Walter Hewlett's final bid to scuttle the acquisition.

Hewlett first fought the deal on the grounds that buying Compaq was too risky and would bog HP down in the weak PC market at the expense of its profitable printing division.

In a lawsuit against the company, he contends HP won its slim majority in the March 19 shareholder vote by threatening to take business away from at least one big investor, Deutsche Bank, and by hiding unflattering information about HP and Compaq's ability to carry out the merger.

Opening arguments are scheduled Tuesday in Delaware Chancery Court in Wilmington, which has jurisdiction over the governance of companies that are incorporated in the state, including HP.

In a scene normally reserved for popular sporting events and concerts, about 100 people--mostly attorneys, investors and journalists--lined up outside the courthouse early Tuesday. Some had paid others to stand in line overnight to ensure they would get inside the courtroom.

"This is such a high-profile case, everybody's afraid they're not going to get a seat for the trial," said Rob Campbell, 27, an employee at a local courier service who was paid $20 an hour by a law firm to line up outside the courthouse at 3 a.m.

The trial, being heard by one of the court's expert business judges and not a jury, is expected to last three days.

HP executives are expected to testify, but it's unclear whether chairwoman and CEO Carly Fiorina will be among them. Fiorina gave a deposition in the case, as did other top brass from HP, Deutsche Bank, Goldman Sachs--HP's banker on the deal--and the firms that advised Walter Hewlett.

"We welcome the opportunity to present our case in front of the chancellor and have the facts come to light," HP said in a statement Monday. "We believe when the evidence is heard, it will be clear that HP acted properly in all cases."

A Hewlett spokesman did not return a call seeking comment.

A preliminary tally released last week by an independent proxy-certifying firm found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6 percent came out against. With more than 1.6 billion shares voted, HP beat Hewlett by 45 million shares.

Hewlett hopes Chancellor William Chandler III negates the vote either by voiding certain investors' shares or by determining that HP corrupted the entire process by buying votes.

Hewlett believes Deutsche Asset Management originally voted 25 million HP shares against the deal but switched 17 million just before the shareholder meeting, which came days after Deutsche Bank helped arrange a $4 billion credit facility for HP.

Hewlett-Packard has denied wrongdoing, and Deutsche Asset Management has said it merely voted the shares it controlled in the best interests of its investment clients.

In trading Monday on the New York Stock Exchange, shares of Palo Alto, Calif.-based HP fell 42 cents, 2.3 percent, to $18.27. Shares of Houston-based Compaq lost 40 cents, 3.6 percent, to $10.73.

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