Hewlett-Packard Co. withdrew its nomination of Walter Hewlett from its slate of directors Monday, effectively ousting the dissident board member who crusaded against the company's pending $19-billion merger with Compaq Computer Corp.
It's the latest volley in an extraordinary battle between HP and the son of co-founder William Hewlett. Walter Hewlett, 57, amassed broad support among shareholders in opposing the merger. Although an official tally of the March 19 shareholder vote will not be available for several weeks, HP Chief Executive Carly Fiorina has declared a "slim but sufficient" margin in favor of the merger.
Hewlett last week filed a lawsuit alleging that company executives coerced a large shareholder to endorse the merger and understated the difficulties in creating what would be the largest computer company in the world. Hewlett has argued that HP's profitable printer business would be diluted by Compaq's commitment to the struggling PC market.
But as late as Thursday, fellow directors were poised to unanimously renominate Hewlett to its nine-member board. HP director Sam Ginn said in a statement that the HP board met with Hewlett on Wednesday. Hours after the meeting, Hewlett filed his complaint in Delaware Chancery Court.
"My fellow board members and I were ... shocked when just hours later, Walter Hewlett filed a spurious lawsuit against the company," Ginn said.
Hewlett, who controls about 5% of HP shares, said at a rare news conference two weeks ago that he wished to stay on as an HP director. He issued a statement Monday expressing disappointment in the board's nominations.
"It is unfortunate that the HP board has seemingly missed what the company's stockholders have clearly recognized: that dissent is not disloyalty," Hewlett said. He also reiterated his intent to support the merger should the final vote come out in favor of the union.
Anticipating voter approval, HP and Compaq on Monday issued its joint slate of candidates for a combined 12-member board, with seven members from HP and five from Compaq. HP said it would hold a meeting of shareholders to vote on the list of candidates April 26 in Cupertino, Calif.
Although Hewlett missed a November deadline to become a write-in candidate in this year's vote, he can petition to be on next year's slate, said corporate governance experts.
"The family can certainly come back and nominate Walter in 2003," said Patrick McGurn, vice president of Institutional Shareholder Services, an influential advisory firm. "Our position is that we like dissent in boardrooms. It would have been more interesting if they had appointed him."
Hewlett has become something of a folk hero to many small investors who saw his fight as evidence of shareholder activism. Because of this popularity, HP's decision to oust Hewlett may have negative consequences, experts and investors said.
"In the post-Enron era, investors are demanding independent directors," said David Katz, chief investment officer of Matrix Asset Advisors, which owns 613,000 HP shares and 745,000 Compaq shares. "Clearly, this is a step back."
Nell Minow, editor of watchdog Web site Corporate Library, said HP would need to work hard to regain the confidence of shareholders who backed Hewlett against the merger.
"They have a huge burden of proof to demonstrate to the investor community that they will put someone on who will do a better job than Walter Hewlett," she said. "It better be somebody really great, someone who has instant credibility with the community."