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Tuesday, 2 April, 2002, 15:09 GMT 16:09 UK
Lawsuit disputes HP-Compaq merger
Bill Hewlett and David Packard, and the garage in which they founded HP
Bill Hewlett and David Packard founded Hewlett-Packard in this garage
The plans to merge computer giants Hewlett-Packard and Compaq may yet have their day in court after Walter Hewlett, son of one of HP's founders, filed suit alleging irregularities in how shareholders voted on the deal.

"The complaint raises issues about the process by which Hewlett-Packard solicited votes for the approval of the proposed merger with Compaq," Mr Hewlett - leader of a five-month campaign against the plan - said in a statement.

According to the suit, Deutsche Asset Management, a unit of Deutsche Bank with 1.31% of HP's shares at the end of last year, was originally planning to line up 25 million shares against the merger.

But at the last minute, it says, it put 17 million votes in favour, supposedly out of the fear of losing HP's business in the future.

Switching sides?

Days before the vote, it alleges, Deutsche Bank was added to a multi-institution line of credit.

HP chief executive Carly Fiorina
Fiorina: margin was 'slim but sufficient'
"Deutsche Bank was led to understand that if it did not switch its votes in favour of the proposed merger, its future business dealings with HP would be jeopardised," the suit said.

The move "tainted more than enough votes to swing the election in favour of the merger", the suit says.

The details of the ballot have not yet been made public, but HP chief executive Carly Fiorina has said that it was won by a "slim but sufficient margin".

'False accusations'

HP, needless to say, dismissed the allegations as "baseless".

"We believe this suit is completely without merit and intend to vigorously defend it," the company said in a statement.

"We find it regrettable that Mr Hewlett has chosen to resort to baseless claims without regard to the impact of his false accusations on HP's business reputation and employees."

Mr Hewlett himself has a stake in HP via the William R Hewlett Revocable Trust, named after his father.

Should he lose the case, his suit said, he is committed to "do everything he can to support the successful implementation of the merger".

But in the meantime he is looking for an expedited hearing, since the elaborate process of signing off on the ballot is likely to be complete within a few weeks.

Big deal

if the suit fails and the deal goes ahead, it would be one of the largest ever attempted in the computer industry.

It would create a computer giant that would rival IBM, a long-stated goal of Ms Fiorina.

But critics charge that Hewlett-Packard, the oldest high-tech firm in Silicon Valley, would lose its character in the merger, and dilute its high-value imaging business by merging with a loss-making computer manufacturer.

Compaq, and rivals like Gateway, have suffered in the highly competitive computer market with profits and sales down sharply this year. Only its long-time rival Dell has managed to keep to its performance targets.

The merger could also lead to up to 15,000 job losses, although Hewlett-Packard has refused to be drawn on where they might come from.

The Patrick O'Connell
"The lawsuit claims that Hewlett Packard acted improperly"
Professor John Coffee, Colombia University
"The claim is votebuying"
See also:

20 Mar 02 | Business
Compaq votes in favour of merger
20 Mar 02 | Business
Shareholders hail 'historic' vote
19 Mar 02 | Business
Close vote on computer merger
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