Walter Hewlett's suit to block the merger of Hewlett Packard and
Compaq Computer has survived a bid by HP's lawyers to have it
thrown out of court.
In the US, Delaware Chancery Court Justice William B. Chandler III
rejected HP's bid to dismiss the case this afternoon and opened the
way for a 23 April trial.
Hewlett, son of co-founder William Hewlett, filed suit against HP
alleging the company had coerced Frankfurt-based Deutsche Bank to
switch 17m of its 25m shares in favour of the $22bn (£15bn)
HP/Compaq merger.
HP filed a motion to dismiss the suit last week and Chandler heard
arguments from both sides yesterday.
In his sharply-worded decision, Chandler said he allowed the suit
to continue because it is reasonable to believe Hewlett's assertion
that HP coerced Deutsche Bank into changing its vote.
"Initially, I believe the facts as alleged in the complaint support
a reasonable inference that the switch of Deutsche Bank's vote of
17m shares to favour the merger was the result of the enticement or
coercion of Deutsche Bank by HP management," Chandler wrote.
HP's lawyers made the claim that Hewlett did not provide sufficient
facts of a contractual agreement between the company and Deutsche
Bank. However, Chandler wrote that such a strict interpretation of
vote buying is not necessary to move ahead with a case.
"The threshold showing required of a plaintiff is that he plead
facts from which it is reasonable to infer that in exchange for
'consideration personal to the stockholder,' a stockholder has
agreed to vote, or has in fact voted, his shares as directed by
another," Chandler wrote.
There were a number of actions taken by HP management that would
lead someone to infer a deal was made, Chandler wrote. He pointed
to Deutsche Bank co-arranging a multi-billion line of credit and to
HP chief executive and chairwoman Carly Fiorina delaying the start
of a scheduled shareholders meeting until she got news of the
bank's decision as two such actions.
"However," he wrote, "a vote-buying agreement is not illegal per
se, even when the company management is buying votes."
According to Chandler, what Hewlett needs to prove is that the
agreement had a "materially adverse effect" on the company and on
shareholders. He also wrote that Hewlett faces an uphill battle to
show that Deutsche Bank was indeed coerced and did not act
independently.
Still, Chandler said that if Hewlett's charges are true it meant
HP's management put its desire for the merger above the wishes of
independent shareholders.
"In my opinion, that is an improper use of corporate assets by a
board to interfere with the shareholder franchise," Chandler said
in the decision.
"Whether the shareholders disagreed with, did not believe, or even
did not understand the information presented to them by HP
management about the proposed merger, it was the right of the
shareholders to cast their votes on the proposed merger without
impermissible interference from HP management," he wrote.
In its motion to dismiss, HP had asserted that Deutsche Bank simply
voted in its best interest, which is what any shareholder,
including Hewlett, would have done.
HP also had tried to blunt Hewlett's claims that HP management lied
in order to sway voters to back their cause.
Chandler rejected the HP argument, writing that "the allegations
can reasonably be read to imply that statements were made which HP
management did not genuinely believe to be true."
In a terse three-paragraph statement, HP said it remains confident
it will win the case.
"We respect the chancellor's decision to hear the evidence on the
issues that have been raised," the company said. "We remain
confident, particularly based on the arguments presented, that once
the facts are heard, we will prevail.
"We remain optimistic we will be able to complete the merger on our
current schedule," the statement said. "HP continues its progress
in integration planning and looks forward to the receipt of the
certified vote result from the HP shareowner meeting, which is
expected within a few weeks."