HP says Deutsche Bank supported merger

Hewlett-Packard believed that Deutsche Bank was a "close friend" of the company and supportive of its merger with Compaq right...

Hewlett-Packard believed that Deutsche Bank was a "close friend" of the company and supportive of its merger with Compaq right from the beginning, according to HP's chief financial officer, Robert Wayman.

Wayman said in court yesterday that when the merger was announced on 4 September, Deutsche Bank's chief HP analyst began to back the deal. Bank officials then contacted Wayman and other HP officials to see if the bank could help ensure the success of the merger.

He added that bank officials told him that Deutsche Bank had helped AT&T in its proxy fight and that it could do the same for HP. The two sides then negotiated throughout the autumn and winter until they signed a contract in February.

The terms of the contract stated that Deutsche Bank would be paid $1m (£688,318) to help HP get shareholders to support the merger. If Deutsche Bank was successful, Wayman testified, it would be paid an additional $1m.

In his suit to stop HP's merger with Compaq, dissident director Walter Hewlett alleges that HP coerced Deutsche Bank officials to switch 17 million votes in favour of the merger in exchange for HP's making the bank the co-arranger in a multibillion-dollar line of credit. Both HP and Deutsche Bank deny the charge.

Wayman said he was shocked and angry to find out days before the proxy vote that Deutsche Bank did not plan to back the merger. He called the two men with whom he had negotiated the original deal and was told that the bank would back the merger. He said later that he kept hearing rumours that the bank was voting against the merger and he called again.

"This vote will be close, and it is really important that you check with your folks and find out where they are going to vote," Wayman claimed he told the bank officials.

"Is it fair to say you got agitated with them?" Walter Hewlett's attorney, Stephen Neal, asked.

"Agitated and frustrated," Wayman responded, adding that he quickly put his anger aside and concentrated on getting a chance to make a pitch to the bank's asset managers.

Wayman said HP had not presented a case to Deutsche Bank because he had always assumed that the bank was in favour of the merger, since the analyst had been so positive and the bank had solicited HP's business.

Meanwhile, both Wayman and HP chief executive officer and chairwoman Carly Fiorina continued to paint a picture of a middle management staff that was overly negative and not entirely up to date on what was happening in the merger process.

Fiorina and Wayman rejected a series of reports by those middle managers that indicated that the combined company would not be able to meet financial expectations.

Wayman, like Fiorina before him, painted HP managers as not being connected to the big picture of the merger and being too swayed by negative economic information regarding the country at large. Both claimed they could see broader trends that were not apparent to middle managers.

Fiorina added that those managers also did not have all the documents related to the merger. The two companies had set up a "clean team" that had all the company documents, while most middle managers did not. If the merger failed to win antitrust approval, those managers would have the corporate secrets of a competitor. For that reason, the number of people with total access to the documents was kept low.

When the reports in question were created, many of the middle managers who authored them had only recently been given greater access. In some cases, Wayman said, the managers of the new business units were made up of both Compaq and HP employees who had just met each other for the first time.

Coupled with that, Fiorina added, the general economic climate in the country was poor, and the managers' opinions for the future of the combined HP/Compaq reflected that view.

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