The merger of Hewlett-Packard and Compaq hit another potential snag Monday as the U.S. Securities and Exchange Commission (SEC) and federal prosecutors in New York decided to take a closer look at HP’s dealings with at least two large investors whose votes were key to approval of the merger.
Investigators in the SEC’s San Francisco office have asked HP to turn over information regarding its interactions and relationships with Deutsche Bank, which has been named by dissident HP director Walter Hewlett in a lawsuit aimed at blocking the US$19 billion merger.
Hewlett contends that Deutsche Bank reversed its position on the proposed merger because it did not want to lose HP’s substantial investment banking business. Deutsche Bank’s 17 million shares played a critical role in HP’s efforts to drum up support for the merger, which is believed to have passed by only a narrow margin.
HP: No Wrongdoing?
Despite published reports of questionable practices leading up to the vote, an HP spokesperson claimed the company did nothing wrong. “We never acted improperly,” the spokesperson said.
But according to reports, HP CEO Carly Fiorina left a voice mail message with another HP executive just two nights before the vote that indicated the company was pushing to get sufficient support to approve the merger. Fiorina reportedly said, “We may have to do something extraordinary for those two [Deutsche Bank and Northern Trust] to bring them over the line here.”
But the HP spokesperson contended that the company did not use undue influence to shift the vote. “We have long-standing relationships with Deutsche Bank as well as with many other institutional shareowners,” the spokesperson said. “Some of them voted for the merger, others against, some split their votes and others changed their minds — in both directions.”
The SEC action comes on the heels of a subpoena issued by federal prosecutors in New York seeking greater details on voting by both Deutsche Bank and Northern Trust.
Walter Hewlett has made it clear that he opposes the merger and believes the company acted improperly in lobbying for votes. His suit, which HP considers “spurious,” is set to go to trial in Delaware next week.
Though proxies are still being counted, Walter Hewlett wants a judge to order a new vote or disqualify the votes cast by Deutsche Bank, which he believes switched its position out of fear that HP would take future investment banking business elsewhere.
Both HP and Compaq are continuing with their plans to keep the merger on track.
“We remain optimistic that we can close the merger on our current schedule,” HP’s spokesperson said.