Hewlett-Packard chairwoman and chief executive officer Carly
Fiorina told a packed courtroom yesterday that she did not tell
shareholders or directors about internal documents - which said the
HP/Compaq merger would not meet publicly released financial
projections - because to do so would have been
"irresponsible".
Fiorina insisted that the data did not reflect the entire financial
picture surrounding the merger between the two companies.
Her testimony came on the first day of a hearing prompted by a
lawsuit filed last month by Walter Hewlett, a dissident HP board
member seeking to block the merger.
The documents suggest that internal sources at HP knew the merger
would lead to greater losses than first believed and that, instead
of a 12-13% accretion rate for company shares there would actually
be a 10% loss.
In his opening remarks, Hewlett's attorney, Stephen Neal, said that
the documents indicated that HP's management knew there were
financial problems with the merger but they did not tell
shareholders.
He added that even though they were aware of this, they were
appearing on television and meeting with shareholders and analysts
to assert the merger figures released last fall were, more or less,
correct.
Neal buttressed that argument in his opening remarks by releasing
an excerpt from Compaq CEO Michael Capellas' personal journal where
he questioned the success of the merger.
Fiorina said she expects to be about 13,000 layoffs after the
merger, not the 15,000 the company originally projected. She went
on to say that she expected about 10,000 jobs would be eliminated
because of duplication.
But, she added, the combined company was likely to end up creating
new jobs, perhaps reducing the number of layoffs.
Neal is expected to eventually focus on HP's relationship with
Deutsche Bank. He said documents show that Deutsche Bank's
commercial side had gone to HP and asked to help it with the
merger. They also show that Deutsche Bank would have received a $1m
success fee if the merger went through.
Despite this, other Deutsche Bank managers had, originally, cast
the bank's 25 million shares against the merger. It was only after
Fiorina and HP chief financial officer Robert Wayman made a
last-minute pitch to the bank in a conference call that it decided
to switch 17 million shares.
Bank managers working with HP and those overseeing how the bank
would vote were present, and Neal has suggested that there was an
erosion of the "ethical wall" between the two groups.
Earlier, Hewlett's lawyer pointed to journal entries made by
Capellas in which he wrote that the merger would be a case study
for business students for years to come and that under its "current
course and speed, we will fail".
Neal went on to present a variety of documents which, he said,
showed an internal HP/Compaq committee had a much bleaker financial
outlook on results of the merger than those made by managements'
public statements.
HP's attorneys contended in their opening statements that those
documents were out of context and purposefully conservative.
In addition to Fiorina, Wayman and HP board member Phil Condit, who
is chairman and chief executive of Boeing, are scheduled to testify
in the trial to determine whether HP's management tried to buy the
votes of Deutsche Bank.