Hewlett-Packard sons’ rebukes make Fiorina’s position more difficult

Brian Bergstein

Thursday, Nov. 8, 2001 | 9:59 a.m.

PALO ALTO, Calif. -- Even before this week, Hewlett-Packard Chairwoman and Chief Executive Carly Fiorina was fighting hard to win support for her $21 billion plan to acquire Compaq Computer Corp.

Now matters have gotten even more difficult for her -- with the sons of the company's legendary founders blasting the deal and the company's biggest shareholder, the Packard family foundation, undecided about how to vote.

Fiorina faces the increasing possibility the acquisition will fall through, putting her job at risk. And even if HP shareholders do vote for the deal, her leadership has been questioned at a difficult time.

"Clearly it's a lot more challenging now," said Toni Sacconaghi, an analyst with Sanford Bernstein & Co.

"Not only do (the Hewlett and Packard sons) have voting power, they have influence power because they are the family and the founders are fairly highly revered. More importantly, it sets in motion a more open forum for other shareholders to start voicing their opinion about the deal."

First Walter B. Hewlett, speaking on behalf of family interests that own more than 5 percent of HP stock, said Compaq would give HP too much exposure to low-margin personal computers and dilute its valuable printing franchise. Hewlett, the oldest son of co-founder William Hewlett, is a member of HP's board.

Then co-founder David Packard's son, David W. Packard, whose Packard Humanities Institute has 1.3 percent of HP's shares, said he agreed, and sharply criticized HP's Fiorina approach to running the company.

"For some time I have been skeptical about management's confidence that it can aggressively reinvent HP culture overnight -- a culture that developed over many years and was thoroughly tested under all kinds of business conditions," Packard said. "While change is necessary and inevitable, it does not follow that every innovation is an improvement."

David W. Packard is not on the board of the charitable foundation his parents launched in 1964, which owns more than 10 percent of HP stock, making it the largest shareholder. Two sisters are on the board, however.

That organization is still undecided about the Compaq acquisition. The stakes are huge -- roughly $4 billion of the foundation's $5 billion in assets are tied up in HP stock.

Analysts say that if Hewlett and Packard family holdings are voted against the deal, the chances of approval would drop significantly. A date for a shareholder vote has not been set.

George Vera, the Packard Foundation's chief financial officer, said he expects the organization will take at least a month to make its decision, in consultation with outside advisers.

HP shares fell 3 percent, or 63 cents, to $19.18 Wednesday on the New York Stock Exchange. Compaq shares lost 6 percent to close at $7.99.

HP's full board of directors, with the exception of Walter Hewlett, released a statement Wednesday saying it "unequivocally" backs Fiorina. Compaq's board also reiterated its support for the deal.

"The board thoroughly analyzed this transaction and unanimously concluded this is the very best way to deliver the value our shareowners expect," said Dick Hackborn, HP's former chairman and executive vice president -- and a member of the Hewlett family foundation's board.

That and similar emphatic statements from HP's directors have led Sacconaghi to believe that Fiorina's job would not necessarily be in jeopardy if the Compaq deal falls apart.

Fiorina did not discuss this week's developments during a speech Wednesday in Los Angeles, though she said in response to an audience question that she is more focused on ensuring HP's long-term financial health than on short-term issues.

"Doing that requires the courage of one's convictions, but's that's also the CEO's job," she said. She declined to comment to reporters afterward.