Hewlett spells out his merger opposition in court

The portrait of Walter Hewlett that emerged in cross-examination was of a man out of touch with the rest of the Hewlett Packard Co. board of directors and obsessed with his battle to stop the merger between HP and the Houston-based Compaq Computer Corp.

Hewlett admitted that he never brought his doubts about financial numbers created by HP's Chairwoman and Chief Executive Officer Carly Fiorina and Chief Financial Officer Robert Wayman to the rest of the board in January because he was too engaged in his proxy fight and because he was estranged from the rest of the board by that time.

"Unfortunately, communications between me and the board had broken down," Hewlett said in court this afternoon when asked by HP's attorney, Steven M Schatz, why he didn't take more forceful action.

When Schatz asked him if he had taken his doubts to the board and management so they could make corrections to their figures and thus keep shareholders better informed, Hewlett said that he did not.

"Why didn't you go to board members?" Schatz asked.

"It didn't cross my mind...." Hewlett replied.

Hewlett continually answered Schatz's questions by saying he was on the road and busy with his proxy fight. He also said that during the fall and winter he became more estranged from the board because of the battle and ended up not really talking to any of them anymore.

When Schatz asked Hewlett if he ever asked Fiorina or Wayman how they arrived at the details of their figures showing the merger would be a success, Hewlett said no.

At one point, Schatz asked Hewlett if he knew he was going to file suit against HP at the last board meeting he attended in mid-March. Hewlett said yes. When Schatz asked if he had told other board members he was filing suit, he said no. Schatz then asked if there were times when integrity meant not telling the truth. Hewlett said yes--to the surprise of many attorneys gathered in the court observing the trial.

Another fact that emerged in court today was that at least one of the two documents that sparked Hewlett to file suit turned out to be a forgery. Allegedly, Hewlett had received a letter from Compaq's Michael Capellas expressing concerns about the merger. Based on that and another letter he received, Hewlett made his decision to pursue the case.

However, when Schatz asked Hewlett if his own attorneys had entered the Capellas letter into evidence, Hewlett said they had not, because evidence had emerged indicating it was probably forged.

Hewlett also said that he believed Fiorina and Wayman had made a presentation of their case to Frankfurt-based Deutsche Bank AG because that is what they testified that they did. This statement partially contradicts the basis of his suit that Wayman and Fiorina used that presentation to bully Deutsche into backing the merger.

Hewlett's own attorney, Stephen Neal, came back after Schatz' cross-examination and re-directed some of his testimony. He showed, in part, that HP management did not tell Hewlett about at least one board meeting last summer after he had expressed displeasure at their tentative plans to merge the company with Compaq.

Neal also got Hewlett to elaborate on why he opposed the merger. Essentially, Hewlett said it was because:

It moved the company away from a focus set by previous management teams.

Previous management teams had shown that once a company reaches a certain size it no longer produces double-digit revenue growth and HP had reached that size.

When HP bought Apollo Computer each company had had 20 percent of the personal computer market. But instead of HP ending up with 40 percent of the market, it merely retained its 20 percent share.

And because the merger would end HP as he had always known it.

The trial is expected to resume tomorrow at 9 a.m. And in an effort to speed up the hearing ahead of HP's annual meeting on Friday, some testimony will be replaced with video taped depositions that Judge William Chandler III will view privately.

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