Fighting to save the biggest merger in high-tech history, Hewlett-Packard Co chief Carly Fiorina testified that she didn't deceive shareholders about the prospects of the Compaq Computer Corp purchase and never bullied big investors to vote for the deal.
Fiorina's four-plus hours on the witness stand Tuesday came after lawyers for dissident director Walter Hewlett said company memos and a personal diary showed that HP executives knew the Compaq deal was likely to work out far worse than the companies were saying publicly.
Hewlett attorney Steven Neal said internal memos show the US$19 billion deal likely would reduce the combined company's earnings per share by as much as 10 percent rather than boost them 12 or 13 percent, as the company claimed in Securities and Exchange Commission filings. Company charts showed similar problems, he said.
"The attached is a frightening reality check," said one staff e-mail sent to HP's chief financial officer and read in court by Neal. "I see little realistic upside and I am not alone. I sincerely hope we all start acknowledging the realities soon."
The official certification of HP's shareholder vote on the deal, first announced seven months ago, is expected within days, but Hewlett is asking a Delaware Chancery Court judge to invalidate those results. A preliminary tally released last week found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6 percent came out against.
Neal said that in late February or early March, Compaq CEO Michael Capellas wrote of a "sobering thought" in his personal journal: "At our course and speed we will fail."
But under questioning from Neal and then an HP attorney, Fiorina meticulously challenged the claim that HP misled investors, saying Neal had taken memos and charts out of context and overlooked other reports showing the deal well on track. Fiorina said HP made conservative estimates so as to "underpromise and over-deliver."
She said she not only stands by the projection that the deal will generate US$2.5 billion in savings in 2004 but now would be "very disappointed if we don't do better than that."
Fiorina also denied a key element of Hewlett's case: that she or other top HP officials threatened to withhold lucrative business from Deutsche Bank if Deutsche's investment arm did not vote 17 million shares for the deal at the last minute.
Appearing as the first witness, Fiorina said there was no "quid pro quo" to get Deutsche Bank to reverse its decision and vote millions of shares in favor of the deal. Part of that enticement, the suit alleges, was a recent multimillion credit facility brokered by Deutsche Bank.
"Absolutely not," she said, when asked by her HP attorney about whether there was an agreement to give future HP business to Deutsche Bank in exchange for its support of the merger or any effort to punish the bank for opposing it.
It would have been "improper" to use the deal for that purpose, Fiorina testified before a courtroom packed with lawyers and investment specialists monitoring the case.
Asked about a leaked voice message in which she said HP had to do something "extraordinary" to win over Deutsche Bank, Fiorina said, "I was trying to convey a sense of urgency ... maybe get on a plane, talk to institutions about process, maybe allay fears about Compaq."
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