In its final weeks, the Hewlett-Packard proxy fight is becoming increasingly tough and increasingly personal.
The latest volley to win votes began on Tuesday when Walter Hewlett asserted that the Hewlett-Packard board has considered paying Carleton Fiorina, the chief executive of Hewlett-Packard, and Michael Capellas, the chief executive of Compaq Computer, a total of US$115 million in salary, bonus payments and stock options, if the planned merger of the two companies was completed.
Hewlett, a Hewlett-Packard board member and the leading opponent of the deal, accused the company of trying to "hide the ball" by not disclosing the executive compensation discussions.
Charges of disinformation
Late Tuesday afternoon, Hewlett-Packard issued a statement asserting that Hewlett was "disseminating misinformation about nonexistent employment terms." In the past, Hewlett-Packard has questioned the credibility of Hewlett and said his rationale has changed over the months.
"Simply put," the Hewlett-Packard statement declared, "Walter Hewlett is again attempting to mislead investors -- but worse than his usual flip-flop, it is plainly deceptive."
"It is unfortunate," the company added, "that he is willing to blatantly breach his fiduciary duties as a HP director."
Hewlett's statement, and a seven-page report on his view of the compensation issue, is his effort to raise questions about the credibility and motivations of the merger's leading advocates, Fiorina and Capellas. His disclosure came just before Hewlett-Packard will be making a day-long presentation to securities analysts in New York on Wednesday, and as shareholders are beginning to receive their proxy forms in the mail in the run-up to the voting deadline of March 19.
Later this week or next week, Institutional Shareholder Services, an advisory firm, is expected to make its recommendation for or against with deal, a position that will probably influence the vote of many large shareholders.
Beyond the 18 percent the Hewlett and Packard foundations have pledged to vote against the deal, only a few institutional investors have stated their intentions. These institutions add up to roughly two percent of the shares for the deal, and two percent against, including the Robert E. Torray & Co, which on Tuesday signaled that it planned to vote its 6.7 million in opposition.
Hewlett-Packard's shares rose US$0.03 to US$20.01 on Tuesday, while Compaq's fell US$0.20 to US$10.40.
In his document, Hewlett said on the eve of the merger announcement on Sept. 4, there was a "side letter" to the agreement that dealt with compensation. As a member of the Hewlett-Packard board's compensation committee, Hewlett received a copy.
For Fiorina, according to Hewlett's report, the compensation under consideration included an annual base salary of US$1.4 million, a target annual bonus of US$4.8 million, 6 million stock options with an estimated value of US$57 million. For Capellas, the report stated, the compensation being considered included a base salary of US$1 million, a target annual bonus of US$3.8 million and 4 million options with an estimated value of US$38 million.
Later, in its proxy materials, Hewlett-Packard did disclose that it intended to make lucrative payments of US$33 million to retain the top management teams of both companies to remain employed for at least a year after the merger is completed.
In its proxy statement, the company said Fiorina had declined to accept her retention payment of US$8 million and Capellas had also declined his of US$14.4 million. The proxy statement added that the compensation packages for the top executives would be figured out after the merger was completed.
Lucrative compensation
Hewlett's report clearly suggests two things: the seemingly generous concessions by Fiorina and Capellas were made because only because both knew very lucrative pay packages awaited if the deal was completed, and Hewlett-Packard decided not to disclose the compensation packages under consideration to avoid further criticism of a controversial merger.
But Hewlett-Packard insists such reasoning is erroneous. According to Larry W. Sonsini, outside counsel to the company, the figures in Hewlett's report were preliminary numbers, which were rejected as probably too high and not the result of a rigorous methodology. "The prior discussions were aborted," Sonsini said. "The prior discussions were not a benchmark for what the compensation will be, and the prior discussions were confidential."
"It's unfortunate that Walter has decided to do this now," said Sonsini, a partner in the firm, Wilson Sonsini Goodrich and Rosati.
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