Earlier Delaware Chancery Court Judge William Chandler had upheld HP’s March 19 shareholder vote and cleared Chief Executive Carly Fiorina of wrongdoing.
Judge Chandler also rejected Hewlett’s claims that HP management lied to shareholders about financial projections and bought votes from a key investor on the eve of the merger vote.
“Members of HP’s senior management testified credibly, in accordance with the evidence and without exception,” Chandler wrote in the decision.
Hewlett, who was ousted as an HP director last week, leaving the company without a member of the Hewlett or Packard families on its board for the first time in its 63-year history, said in a statement that he would not appeal the ruling and would let the March 19 merger vote tally be certified.
“I will therefore now do everything possible to support the successful implementation of HP’s acquisition of Compaq and encourage others who have shared my views in the past several months to do the same,” he said.
“Clearly we are gratified and it is time we had the opportunity to move on,” HP spokeswoman Rebeca Robboy said in response.
Fiorina argues the merger will create a global computer powerhouse in a consolidating industry, while Hewlett called the deal a multibillion dollar mistake that would saddle HP with a huge low-profit personal computer business rather than enhance its high-end computing and printer businesses.
HP plans to join the two companies on May 7, beginning a long integration process that Fiorina called the toughest part of the merger, when she announced her plan in September. Many HP employees opposed the plan, and some 15,000 workers — about 10 percent of the new company — will lose their jobs.
Fiorina will continue her quest to shake up the company, the main reason she was brought in three years ago as the first outsider to head HP, which saw its early model of community-oriented decision making tarnished in later years by a reputation for bureaucracy and entitlement.
“You’ve got to change people,” said Martin Reynolds, an analyst at technology research firm Gartner Inc. “That’s their biggest challenge — it is maintaining morale and the engagement of the employees over the next year.”
Shares of HP in after-hours trade on Instinet fell to $16.86 after the Hewlett concession down from a close of $17.10 on the New York Stock Exchange. Shares Compaq were up to $10.50 from their close at $10.15.
Volume in both shares was relatively light on Instinet — with 245,000 shares traded in Compaq and 50,000 in HP — in part because of the May Day holiday in much of Asia, a Hong Kong-based trader for Instinet said.
NO SIGN OF LIES
Securities regulators and federal prosecutors have both probed the HP merger vote but analysts have said the ruling by the Delaware court could strongly influence the course of those investigations.
Judge Chandler said Walter Hewlett had failed to meet the burden of proof on both points in the lawsuit he filed against Palo Alto, California-based HP.
Hewlett alleged that HP had coerced shareholder Deutsche Bank to back the controversial merger by threatening to withdraw future investment banking business.
Hewlett also charged that HP had covered up internal financial forecasts that contradicted public statements about the two companies’ progress toward integration, but Chandler denied that claim as well.
“Plaintiffs have failed to prove that HP management improperly enticed or coerced Deutsche Bank into voting in favor of the merger,” Chandler wrote.
“Nothing in the record indicates that HP lied to or deliberately misled (shareholder adviser Institutional Shareholder Services) ISS or the HP shareholders about its integration efforts,” he added.
Although some internal HP documents showed merger concerns not reflected by official forecasts, the former were rough planning documents and thus incomparable, he ruled.
CHANCE OF REVERSAL SEEN SLIGHT
Samuel Thompson, the director of the Center for Study of Mergers and Acquisitions at the University of Miami School of Law, said a higher court probably would supported HP, had Hewlett asked for a second hearing.
“It seems to be very strong for HP. The chances of it being reversed on appeal are very small, in my judgement.” he said after hearing highlights of the ruling.
Since the merger was announced on Sept. 3, shares of HP have underperformed the computer hardware sector, dropping 26 percent, compared with a drop of 16 or 17 percent for both International Business Machines Corp. IBM.N and Compaq and a 3 percent drop for the American Stock Exchange Computer Hardware Index. .HWI
In his ruling on what merger opponents had pointed to as a kind of “smoking gun,” Chandler also cleared Fiorina from allegations of misconduct arising from an intercepted voicemail to Chief Financial Officer Bob Wayman, in which she said HP might have to do something “extraordinary” to convince Deutsche and another shareholder to back the merger.
“Fiorina’s message reflects reasonable actions taken by an executive faced with unexpected adverse information,” Chandler wrote.
However, he questioned why Deutsche Bank investment bankers had pushed for their asset management colleagues to listen to a last-minute presentation from HP about the merits of the merger.
“This fact raises clear questions about the integrity of the internal ethical wall that purportedly separates Deutsche Bank’s asset management division from its commercial division,” Chandler wrote.
Walter Hewlett added that he would continue working with the company his father had co-founded. “My involvement with HP will not end today,” he said.