Heir and director hopes to be deal breaker

PALO ALTO, Calif. -- They share a name, but that's about it. Hewlett-Packard Co. wishes Walter Hewlett would just go away.

The eldest son of one of the company's revered co-founders, the 57-year-old Hewlett has picked a fight with fellow HP board members over its $23 billion plan to buy Compaq Computer Corp.

The battle by Hewlett and other family members to torpedo the merger -- one of the most intriguing episodes in Silicon Valley history -- goes to a shareholder vote on March 19. Both sides are campaigning for support with full-page newspaper ads, letters, charts -- and some unkind words.

The company has dismissed Hewlett as an "academic and musician" with no real business experience. HP insiders complain that the usually reserved Hewlett surprised them by turning so vigorously against the rest of the board.

The first part of the characterization is a big understatement: Hewlett earned master's degrees in engineering and operations research at Stanford and a doctorate in music. He plays 10 instruments and writes software that digitizes classical scores.

Not backing down

With the determination he has shown in several marathons and a 139-mile "Death Ride" bicycle race in the Sierras, Hewlett is not backing away from his attacks on the deal, even as some analysts now predict it will succeed.

In an interview this week, Hewlett was tough as usual on HP chairwoman and chief executive Carly Fiorina, whose fate hinges on the hotly contested merger.

"I think that Carly has been overly optimistic about what she can do with Hewlett-Packard," he told The Associated Press.

"She first proposed that we expand the company by buying PricewaterhouseCoopers, now she's proposing that we expand the company by buying Compaq. I think she's trying to build the company with some large-scale strategy plan instead of blocking and tackling and building the company the way it should be built."

Hewlett's criticism of the PricewaterhouseCoopers bid -- which ended in 2000 when Fiorina and the consulting firm could not agree on a price -- is curious, since he supported that move.

It is not the only contradiction surrounding Hewlett, a multimillionaire who lives in a modest Palo Alto neighborhood not far from the small garage where his father, William Hewlett, and partner David Packard launched their pioneering company in 1938.

For one, Hewlett originally voted for the Compaq deal before it was announced on Sept. 3. He has said he was told that a non-unanimous board vote might force HP to pay more for Compaq.

HP attorney Larry Sonsini said Hewlett was never told that.

Hewlett also helped the merger plans along by helping to craft the $370 million package of bonuses that important HP employees can get over the next two years if they stay with the company after the deal closes.

The plan calls for Fiorina to get an $8 million post-merger bonus, though she has turned it down.

Hewlett said he was merely doing his job as one of the three HP directors on the board's compensation committee.

Diligence in dispute

Even so, Hewlett's diligence as a director is in dispute. HP has chastised him for missing three board meetings last July.

In one meeting, while Hewlett was fulfilling a long-held commitment to play the cello at an exclusive retreat, HP's bankers made a financial case for buying Compaq. Several directors began that day with serious doubts about the wisdom of the deal but hashed it out in detail and emerged with a positive opinion, according to people who were there.

"I don't even think Walter understands how much work went into this," said George Keyworth, HP's longest-serving director. "The truth is, Walter wasn't there during the crucial parts of the discussion."

Hewlett counters that he has done ample research to conclude that the Compaq deal is too risky and would increase HP's exposure to the weak personal computer market and low-margin technology services business.

"I've been a close observer of Hewlett-Packard for more than 50 years and I've been on the board of directors for 15 years," he noted. "I can say that I really understand HP and the businesses it's in."

He advocates taking smaller steps, investing more heavily in digital imaging, the company's core business, and finding other ways to make PCs profitable -- ideas HP dismisses as "platitudes."

Asked whether he is driven partly by a sense -- voiced by David Packard's son -- that the founders would not have approved of such a blockbuster move, Hewlett said his only motivation is that the deal is bad for shareholders.