HP Trial Wraps Up; Judge Promises Swift Decision
The courtroom battle to block Hewlett-Packard Co.’s acquisition of Compaq Computer Corp. came to an end Thursday without a knockout blow by either side.
Chancellor William Chandler III of Delaware’s Chancery Court has ordered each side to submit final briefs by midnight tonight. Chandler said he expects to rule quickly, although the volume of materials presented in the three-day trial suggests to some experts that the opinion may take several days or longer.
Legal experts say the company will almost certainly appeal to the Supreme Court of Delaware if dissident HP director Walter Hewlett prevails in his lawsuit to void the merger vote.
Final certification of the proxy vote to confirm the merger is expected at any time. HP hopes to launch the merged company May 7. It will conduct a regularly scheduled shareholder meeting today; Hewlett’s term on the HP board also ends today, as HP board members failed to renominate him.
Hewlett’s suit claims that HP officials misrepresented key data about the merger’s benefits and hid financial weaknesses from shareholders and from its own board. It alleges that HP Chief Executive Carly Fiorina and others used threats and promises of new business to coerce institutional shareholders, including Deutsche Bank, to support the merger.
In a dramatic moment Thursday, Hewlett attorney Stephen Neal asked Fiorina to read from a transcript of her conference call with Deutsche Bank held early on March 19, the day of a shareholder meeting at which the merger vote was concluded.
Near the conclusion of the call, Fiorina told Deutsche Bank officials that the vote “is of great importance to our ongoing relationship.” Minutes later, Deutsche Bank switched some 17 million of its proxy votes from opposing to favoring the merger.
Fiorina’s statement was perhaps the closest thing to a smoking gun in the trial. Neal implied that she had compelled Deutsche Bank to change its votes by suggesting that future business with the technology giant could be at stake.
Fiorina angrily disagreed. “It’s crystal clear from the transcript” that Deutsche Bank did not interpret her comment as a threat,” she said on the stand. The complete transcript was not publicly released.
“The relation between persuasion and coercion is a very fine line,” said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. Chandler’s conclusion may depend on Fiorina’s tone and inflection, the rest of what’s on the tape, and the history of HP’s relationship with Deutsche Bank, he said.
Before the trial, some legal experts suggested that Chandler would use this case to reconsider the legal balance of power between shareholder rights and corporate prerogatives.
But perceived weaknesses in Hewlett’s arguments--reflected in HP’s calling just two defense witnesses, questioned for less than three hours--and the high standard for invalidating a shareholder vote makes that prospect less likely, experts said.
“This will be a narrow ruling,” said Reinier Kraakman, professor of law at Harvard University. “I don’t see it as a case that presents the factual backdrop for a strong ruling on the matters of law.”
Shares of Palo Alto-based HP rose 17 cents to $17.38 in New York Stock Exchange trading Thursday.
