HP and Compaq Merger Fight Gets Even Uglier

If you thought the battle between the people who do and don't support the Hewlett-Packard (HP) and Compaq merger couldn't get any uglier, think again. With the clock ticking down to the March 19 shareholder vote on the merger at both companies, the opponents are unloading every trick in the book, from full-page national newspaper ads to publicity campaigns aimed at smearing leaders of the competing factions. The latest charge from Walter Hewlett--an HP board member, leader of the group that opposes the merger, and son of HP cofounder William Hewlett--is that HP CEO Carly Fiorina and Compaq CEO Michael Capellas will earn compensation packages worth more than $110 million if the deal goes through.

HP denied the story and had some unkind words for Hewlett. The company issued a statement yesterday that accused Hewlett of "disseminating misinformation about nonexistent employment terms." The statement followed full-page newspaper ads in which the company accused Hewlett of repeatedly "flip-flopping" in his opinions about the merger and the direction the company should take. "Walter Hewlett is again attempting to mislead investors--but worse than his usual flip-flop, it is plainly deceptive," the statement says. "It is unfortunate that he is willing to blatantly breach his fiduciary duties as an HP director."

As each side seeks to drain the other's credibility, observers might believe that the heart and soul of HP is taking a far bigger beating during this battle than it ever will if the merger goes through, as Hewlett fears. But Hewlett's tactics could ultimately pay off: If anything, the bitter infighting at HP will probably sour the deal.