HP deal alleged to reward 2 CEOs


PALO ALTO, Calif. - Hewlett-Packard Co. Chief Executive Officer Carleton S. "Carly" Fiorina and Compaq Computer Corp. CEO Michael Capellas together might be paid more than $115 million if the two computer makers combine, director Walter B. Hewlett said.

For weeks, Hewlett has been pressing the companies to disclose what top officials would be paid if shareholders approve HP's plan to buy Compaq. He says the pay packages may affect investors' votes on the deal.

Yesterday, he released figures - two years' salary, bonuses and stock options - he said the companies considered when they announced the takeover agreement.

Fiorina is pushing the $21.6 billion purchase of Compaq to shore up her company's sales of server computers and services.

Hewlett, son of co-founder William Hewlett, has started a proxy fight to topple the deal, which he says will make the 64-year-old company too dependent on low-profit personal computers. HP's shareholders will vote on the merger March 19.

"The details of the compensation packages contemplated for Ms. Fiorina and Mr. Capellas are important," Hewlett said in a report. "HP's stockholders deserve to know this information."

The company said no decisions about Fiorina's pay have been made. "We agree that shareowners have every right to know compensation information, but we cannot disclose what has not been decided," it said in a statement.

Fiorina's pay is "below market average," the company said, noting a Business Week survey which found that her 2000 compensation was 41 percent less than average for CEOs of companies with $25 billion or more in annual sales. Compaq couldn't immediately be reached for comment.

Hewlett, a member of the board's compensation committee, said HP considered paying Fiorina $1.6 million in salary and a $4.8 million bonus annually for two years, and stock options with a "total estimated current value" of $57 million. The group had weighed the pay package when the deal was announced Sept. 3, he said.

Capellas may receive a $1 million salary and $3.8 million bonus for two years, with options worth $38 million, Hewlett said.

Those earlier discussions were "aborted" and won't be used as a minimum or benchmark for future agreements, the company said.

As investors scrutinize corporate accounting in the wake of energy trader Enron Corp.'s demise, HP should be more open about its pay policies, some shareholders said.

"I don't think it's nefarious, [but] in a post-Enron age, it just doesn't smell good, being unwilling to talk about it," said Doug Altabef, senior managing director at Matrix Asset Advisors, which owns the stock and opposes the deal.

Brandes Investment Partners LP said it will vote against the merger, a setback to Fiorina as she makes a final push for support before the shareholders' vote.

Brandes, owner of a 1.3 percent stake in HP, is the largest outside investor to publicly align itself with Hewlett and other founding family members, who plan to vote the 18 percent of the HP stock they control against the deal.

Fiorina and Hewlett have been inundating investors with letters, advertisements and data, as they try to build momentum before the shareholders' vote. A recommendation from advisory firm Institutional Shareholder Services next week may sway about a fifth of the investors, analysts said.

While neither side has a clear lead, the Brandes decision may tilt the outcome, some investors said.

"It probably does change things," said Linda Ray, vice president of Northstar Group Inc., which manages $150 million and owns 10,000 Hewlett-Packard shares. "As of yesterday [Monday], the tilt was toward it going through; now it's more of a tilt the other way." Northstar has decided to vote against the deal, she said.

Vinit Bodas, a partner and senior analyst at Brandes, declined to provide specific reasons for the San Diego partnership's decision. The Wall Street Journal reported that Brandes thought an acquisition would create too many cultural and integration risks and that it would be better for HP to continue as a stand-alone company. Brandes owned 24.7 million shares as of December.

Earlier yesterday, the William and Flora Hewlett Foundation, which Walter Hewlett chairs, responded to criticism from the company about recent sales of HP stock amid the proxy fight.

The foundation said in a filing with the Securities and Exchange Commission that it has been diversifying its holdings since 1998 and that HP officials were aware of it because the company bought back two-thirds of the shares the foundation sold from May 2001 through the end of last year.

HP's outside directors also wrote a letter to Hewlett, saying he misrepresented the board's review of company strategy and the Compaq purchase.

"There is no reason for your increasingly strident attacks on HP and our CEO," they wrote. "You have tried, unsuccessfully, to drive a wedge between our CEO and the board of directors."

Hewlett-Packard shares rose 3 cents to $20.01 yesterday, but have dropped 14 percent since the deal was announced. Compaq fell 20 cents yesterday to $10.40.

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