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Hewlett Disputes HP's Claims on Deal


WILMINGTON, Del. — Dissident Hewlett-Packard Co. director Walter Hewlett cast doubts Wednesday on a key HP justification for its planned $19-billion acquisition of Compaq Computer Corp.

During testimony at the trial over his suit to block the merger, Hewlett disputed claims by HP Chief Executive Carly Fiorina that managers intentionally low-balled the potential benefits of the combined company.

Hewlett said that during his 15 years on the board of Palo Alto-based HP, managers of the company's business units have typically operated in the opposite fashion--presenting "overly optimistic" revenue estimates to the board of directors.

"It was the responsibility of senior management to give them a haircut," Hewlett said on the stand, suggesting that worries about the merger might be even deeper than internal memos stated.

On Tuesday, Hewlett's lawyers presented internal documents suggesting that HP executives knew before the March 19 vote that the integration process was in trouble, and that anticipated cost savings and profit would be far below projections.

In testimony Tuesday and Wednesday, Fiorina and Chief Financial Officer Robert Wayman discounted those reports as "snapshots" that gave a false overall impression. They called internal doubts about HP's projections classic "sandbagging"--efforts by managers of the anticipated business units of the merged company to "set the bar low" in order to easily distinguish themselves.

The top managers said that their own, more optimistic estimates were more accurate.

Legal experts said that the credibility of such divergent positions might be unclear even after all evidence is heard. This would leave the answer up to William Chandler III, the judge presiding over the case in Delaware's Chancery Court.

"He is judge and jury," said Reinier Kraakman, professor of law at Harvard University. "He makes the findings of fact and decides on that basis. He has a huge discretion."

Also on Wednesday, Fiorina and Wayman denied that they had in any way coerced Deutsche Bank, a major institutional shareholder, with the promise of HP business in return for its support for the merger.

At one point, tempers flared as Fiorina was questioned by Hewlett's attorney, Stephen Neal.

"Sir, you are accusing the CEO of a publicly traded company of lying," she said.

"I'm only asking you questions right now," Neal replied.

HP fell 83 cents to $17.21 on Wednesday in New York Stock Exchange trading.

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