WILMINGTON, Del. – Hewlett-Packard Co. (HWP) chief Carly Fiorina became agitated on the witness stand Wednesday under questioning about company documents that allegedly show the purchase of Compaq Computer Corp. (CPQ) would fall short of its financial goals.
In the second day of dissident HP director Walter Hewlett's lawsuit against the company, Hewlett attorney Stephen 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 HP had promised to investors.
Sighing several times in exasperation, Fiorina said Neal was drawing the wrong conclusions about the meaning of the charts because they were taken out of context, as if someone looked at selected snapshots instead of "the whole movie."
She said the increase in the gaps was not surprising, because the business units that contributed to the ongoing assessments deliberately set 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. When she finally stepped off the witness stand Wednesday, she had testified for a total of seven hours.
A preliminary tally released last week found that 51.4 percent of HP shares were voted for the Compaq deal, and 48.6 percent came out against. That gives HP a lead of 45 million shares.
Walter Hewlett is asking a Delaware judge to overturn the vote on the grounds that HP 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 from Deutsche Bank.
Neal asked the trial's second witness, HP 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 HP "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, HP'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 HP 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.
Wayman conceded that he is in a position to determine whther HP gives Deutsche Bank future business. But he denied playing that card.
"I've had a long and successful career," Wayman said. "I don't threaten, I don't coerce. I don't entice. I don't mislead."
Deutsche Bank has said its money managers acted in the best interests of their investment clients.
In trading Wednesday on the New York Stock Exchange, shares of Palo Alto, Calif.-based HP fell 83 cents, or 4.6 percent, to close at $17.21. Shares of Houston-based Compaq gained 16 cents to $10.36.
Hewlett sued HP in Delaware Chancery Court because the state regulates proxy fights and other governance issues that concern companies incorporated in the state, such as HP and Compaq. He began testifying Wednesday afternoon and described how his relationship with his fellow directors deteriorated after he mounted his campaign to sink the deal.
If the judge vindicates HP, the HP and Compaq are prepared to begin officially working together May 7.