H-P's Fiorina Grilled about Merger Projections

April 24, 2002 (PLANSPONSOR.com) - Hewlett-Packard (H-P) Chief Executive Carly Fiorina had a tough time on the stand Wednesday during the second day of a Delaware trial, becoming agitated at questions about H-P documents showing the acquisition of Compaq Computer would fall short of financial projections.

According to an Associated Press report, Fiorina sighed several times in exasperation as attorney Stephen Neal, representing H-P dissident director Walter Hewlett, peppered her with questions about a series of charts depicting the latest merger revenue and earnings projections.

Hewlett is asking a Delaware judge to overturn H-P’s March 19 shareholder vote on the grounds that H-P misled shareholders about the progress of the merger planning and improperly coerced at least one investor, Deutsche Bank’s investment arm, by threatening to withhold future business.


On Wednesday, Neal asked Fiorina how the teams that were planning the merger arrived at their financial estimates. Charts introduced as evidence Tuesday showed growing gaps between the latest revenue and earnings projections and the figures H-P had promised to investors.

Fiorina countered that Neal was misinterpreting the charts and taking them out of context. She said the increase in the projected revenue gaps was not surprising.

They came from the business units that contributed to the ongoing assessments deliberately setting relatively low targets so they could overshoot them later. She called the process “sandbagging.”

“Running a business is about identifying gaps between where we need to be and where we are, and the disciplined closing of those gaps,” Fiorina said. “That’s how you produce results.”


At one point during the tense exchange, Neal said somewhat curtly, “Let me ask the questions.”

Fiorina responded, “Sir, you are accusing the CEO of a publicly traded company of lying.”

“I’m only asking you questions right now,” Neal replied.

Fiorina also had stubbornly refused to concede points to Neal on Tuesday, the trial’s first day (see Hewlett Suit Heats up).

When she finally stepped off the witness stand Wednesday, she had testified for a total of seven hours.

Deutsche Asset Management Accusations

Neal asked the trial’s second witness, H-P chief financial officer Bob Wayman, about the last-minute lobbying he did to win over Deutsche Asset Management, which had been opposed to the deal but switched 17 million shares for the merger on the day of the vote.

Wayman said he assumed all along that Deutsche Asset Management would vote for the deal, because Deutsche Bank analyst George Elling was supportive of it and because Deutsche Bank had agreed to provide H-P “market intelligence” during the proxy fight, for $1 million fee, with a $1 million bonus if the deal was approved.

“I would not want somebody not supporting this merger out there with my investors,” Wayman said.

Wayman said that a few days before the March 19 shareholder vote, he asked Benjamin Griswold, a Deutsche Bank vice chairman, how the investment management side of the company was going to vote on the deal. Griswold reported back that the Deutsche money managers were going to vote for it.


But then two days before the vote, H-P’s proxy solicitor informed the company that Deutsche Asset Management actually was going to reject the Compaq deal. Wayman said he was agitated and frustrated with both the news and the fact that he got wrong information.

Griswold was apologetic and embarrassed, Wayman said, and arranged a conference call an hour before the shareholder vote with Deutsche proxy teams so Wayman and Fiorina could make what H-P called its first real chance to lobby Deutsche Asset Management to support the deal.

Less than two hours later, Wayman said, he was told Deutsche Asset Management would support the deal after all.

Deutsche Bank has said its money managers acted in the best interests of their investment clients.