Hewlett: HP Used Corporate Assets To Coerce Deutsche Bank To Switch Votes

Hewlett-Packard Deutsche Bank Compaq Computer

Hewlett's complaint alleges that HP used "corporate assets to coerce and induce" Deutsche Bank to switch as many as 17 million of its 25 million votes in favor of the HP-Compaq merger at the 11th hour for reasons "unrelated to the merits" of the landmark deal.

Hewlett charges that two business days before the bitterly contested shareholder vote, HP closed a new multibillion-dollar credit facility with Deutsche Bank added as a co-arranger.

"In addition to the inducement provided by the HP credit facility, Deutsche Bank was led to understand that if it did not switch its votes to favor the proposed merger, its future business dealings with HP would be jeopardized," the complaint alleges. The complaint was filed in the Court of Chancery for the State of Delaware on Thursday morning.

Hewlett is asking for the court to declare "invalid Deutsche Bank's final proxy cards." In addition, the complaint asks the court to invalidate all proxies voted in favor of the merger. The complaint also asks the court to either declare the merger vote defeated or require "a new vote after the resolicitation of proxies," and also "preliminarily and permanently" enjoin HP from "taking any steps to implement or consummate the issuance of HP shares in connection with the proposed merger."

Hewlett claims that the proxy committee of Deutsche Asset Management had voted its shares against the merger before the credit facility was obtained.

He also claims that Deutsche Bank changed its votes because bank officers "feared" the asset management proxy committee's disapproval of the merger would "destroy" the bank's "ongoing and desired future business dealings with HP."

Deutsche Bank's decision to switch the 17 million votes allegedly came after a conference call "at the demand of HP management" on the morning of the shareholder vote on March 19. Immediately prior to that call, Hewlett says that Deutsche Bank had a "brief telephone call" with him.

Calls to Deutsche Asset Management were not immediately returned. HP, meanwhile, has issued a statement labeling the charges baseless and completely without merit.

Hewlett's complaint also alleges that HP management has made "numerous materially false and misleading statements." Specifically, Hewlett challenges HP's claims that the efforts of the HP-Compaq integration team were progressing as planned.

"The reality concerning integration was materially different and materially worse than what was being stated publicly," the complaint alleges. "HP knew the integration planning was not on track, that the projected cost savings and revenue losses were not what investors expected, and that the way the integration was going, either higher revenues were going to have to be found, other costs were going to have to be cut, or 24,000, not 15,000, HP employees would have to be laid off."

Hewlett claims that at meetings of the HP-Compaq integration team it was disclosed that the "integrated company might not meet projections until at least 2004, and the numbers for 2002 and 2003 were significantly below HP's published projections and the expectations of financial analysts. It was further revealed in these meetings that actual earnings would be over 30 cents per share less than the earnings per share HP was publicly projecting, a difference of $1 billion in profits."

Also in the complaint, Hewlett charges that HP's proxy statement contained misleading figures regarding Compaq's direct PC sales figures.