Advertisment

HP-Compaq merger suffers major setback

author-image
DQW Bureau
New Update



Advertisment

In a potentially devastating setback for Carly Fiorina, one of HP's largest institutional shareholders announced on Tuesday that it would vote its 24.7 million shares (1.3 of the company's stock) against the Compaq merger. Meanwhile, Walter Hewlett, Director, HP, disclosed that HP had planned to pay Fiorina a seemingly outrageous $ 70 million over two years for managing the integration of the two giant organizations.

Fiorina may have felt that money slipping through her fingers when Brandes Investment Partners LP, HP's 14th largest shareholder, announced that it would vote against the merger. The company joins the Hewlett and Packard families, who control about 18 percent of HP's stock in opposing the merger.

Charles Brandes, Managing Partner, Brandes, said that his company opposes the $ 24 billion deal and instead favors the "focus and execute" strategy proposed by dissident board member Walter Hewlett. That strategy calls for HP to focus on its high-profit printing and imaging business and improve its position in enterprise computing through selective small acquisitions.

Advertisment

The merger vote has been scheduled for March 19. With polls showing strong internal opposition to the merger and the possibility of other institutional investors following suit, the merger now appears to have less than a 50 percent chance of getting shareholder approval.

Meanwhile, Hewlett filed a report with the Securities and Exchange Commission stating that HP has refused to disclose plans to provide huge financial compensation for CEOs Fiorina and Compaq's Michael
Capellas.

Hewlett believes that the details of the compensation packages could be important fact shareholders would take into consideration when evaluating public statements by Fiorina and Capellas about the merger.

Advertisment

Under the terms of the compensation packages that were contemplated at the time of the merger announcements, Fiorina and Capellas would have received compensation valued at more than $ 115 million.

Hewlett said the HP board came up with a two-year contract for Fiorina worth $ 69.8 million in salary, bonuses and new stock options. The board also drew up plans to give Capellas--who would be President and COO of the new HP--$ 47.6 million in salary, bonuses and options over the same period.

HP rebutted Hewlett saying no such plans ever existed and accused Hewlett of trying to mislead investors. However, the plans were clearly detailed in minutes of HP's September 20 board meeting. The plans were later tabled until after the merger had been approved. Rather than a bonus for completing the merger, Hewlett said, HP is planning to give the two CEOs huge pay increases instead.

Advertisment

The disclosure of the huge compensation plans cast a dark cloud over the sincerity of Fiorina's and Capellas' earlier withdrawal from $ 8 million and $ 14.4 million retention bonuses they were expecting to receive upon shareholder approval of the merger. At the time they said they withdrew from the bonus plan in order to avoid the appearance of conflict of interest. 

SV News Service

Palo Alto

Advertisment