Why did Walter do it? While plenty is known about Hewlett-Packard Co.'s (HWP ) troubled bid to buy Compaq Computer Corp. (CPQ ), that central question still remains. Why did HP board member and founding family scion Walter B. Hewlett vote with HP's board to O.K. the deal on Sept. 3 only to turn around on Nov. 6 and publicly oppose it? That now-famous reversal has spawned a heated proxy fight that threatens not only the merger but the very tenure of HP CEO Carleton S. Fiorina. Why didn't Hewlett just oppose the deal in the boardroom to try to save HP from the carnival that has since ensued?
Sources close to Hewlett insist he felt he didn't have a choice. After voicing his concerns for months about the deal and its impact on his family's huge charities, he was shocked, they say, to learn at a board meeting just days before the deal was announced that the merger agreement called for unanimous board approval. When Hewlett raised objections, the sources claim he was told the deal would go through with or without his support, though unanimity would ensure a better reception from shareholders.
Since the companies were then in the throes of working out the final stock- exchange ratios, Hewlett's associates say he feared HP would get less favorable terms if the unanimity provision in the merger agreement was deleted. That concern, combined with guidance from HP legal adviser Larry W. Sonsini that he could later oppose the deal by voting his shares against it, the sources say, led Hewlett to begrudgingly vote with the board at the final balloting on Sept. 3. Says Hewlett's lawyer, Cooley Godward partner Stephen C. Neal: "Walter believed the deal was going to get approved by this board no matter what he did."
Sonsini and HP vehemently deny they put any undue heat on Hewlett. "We do not believe that he was pressured," says Sonsini. "Walter is an independent thinker and an experienced board member. He knows very well what his fiduciary duties are: to vote in the best interests of the shareholder."
Still, mergers-and-acquisitions experts say Hewlett's support should have been far more solid for HP to proceed with this risky deal. The deal's size and the poor history of tech mergers made it a long shot from the start. Given his famous family name--and its huge stake--HP needed to win Hewlett's heartfelt support, not just his signature. "If you know Wall Street is likely to be skeptical, then you make sure your principal shareholders are going to be supportive," says M&A expert Dennis J. Block, a partner at Cadwalader, Wickersham & Taft.
The crucial board meeting at which Hewlett felt he was pushed into backing the deal, according to the sources, occurred on Thursday, Aug. 30, at the offices of Wilson, Sonsini, Goodrich & Rosati, HP's law firm. Shortly after Sonsini read aloud the language about the board's unanimous support, sources familiar with the proceedings say Hewlett spoke up and said: "I can't do this. You know my views. Do you realize what an awkward position you've put me in?" HP insiders say they don't recall such an exchange.
According to one Hewlett colleague, the meeting then adjourned for a break. Sonsini allegedly told Hewlett he would not be able to stop the deal. After spending the weekend in Lake Tahoe agonizing over how to vote, the sources say Hewlett went along with the board at the final vote on Monday, Sept. 3. But they say he also told the board he had already decided to vote against the deal. HP insiders deny he said this. Says one: "There was never a gun put to Walter's head, as far as I know."
HP insiders say Sonsini wasn't trying to pressure Hewlett to vote for the deal but was simply stating that the merger would be better received with a unanimous board than without one. They also adamantly deny that HP gave him any reason to fear the deal would have to be renegotiated on less favorable terms if the agreement had to be redrawn because the company couldn't deliver unanimous board approval. But the board clearly was determined to proceed. "We probably would have gone forward anyway," says one insider, rather than let a single director scotch the deal. Whether that will ultimately prove to be a wise decision, however, is still far from settled.
By Peter Burrows in San Mateo, Calif., with Andrew Park in Dallas