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In a sweeping vindication of Hewlett-Packard Co. management, a Delaware Court of Chancery judge ruled Tuesday that he would not invalidate the March 19 shareholder vote that approved the Palo Alto, Calif.-based company’s merger with Compaq Computer Corp., based in Houston. Agreeing with the company on every point, Chancellor William Chandler III found that “HP’s statements [to shareholders] were true, complete and made in good faith.” The ruling — made just five days after the brief trial concluded in Delaware — may draw to a close Walter Hewlett’s crusade to derail the merger. Hewlett, the son of an HP founder, brought suit shortly after the shareholder vote, claiming that the company improperly pressured certain large shareholders to vote for the merger and that the company had issued misleading information about the merger’s progress. The decision is also a huge win for HP’s main outside lawyers at Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati, who not only defended the company in this litigation but helped plan and implement the merger. “The court realized that HP and its management acted properly in all respects,” says Wilson Sonsini partner Steven Schatz, the lead trial lawyer for the company. “It’s a total vindication.” During the trial Walter Hewlett’s lawyers, led by Stephen Neal of Palo Alto-based Cooley Godward, relied heavily on internal e-mail and documents to claim that the integration efforts between the two companies were far off course — and that information should have been disclosed. The company countered that the documents were generated by people who didn’t have the full picture of all the “cost synergies” that could be factored into the integration. In his decision, Chancellor Chandler called the company’s explanation “compelling,” noting that these negative comments were merely “preliminary reports generated early in the planning process, based on imperfect information.” The judge concluded: “Nothing in the record indicates that Hewlett-Packard lied to or deliberately misled … the Hewlett-Packard shareholders about its integration efforts.” The judge also noted that the financial numbers that the company used to tout the benefits of the merger were clearly forward-looking estimates and were “purely illustrative.” The judge similarly rejected Hewlett’s vote-buying claim. Hewlett’s lawyers attempted to show that the company pressured Deutsche Bank Asset Management to switch its vote in a hastily arranged telephone call on the day of the shareholder vote. But the judge concluded that this claim rested on circumstantial evidence. Cooley’s Neal concedes this is a clear victory for the company. “[The judge] certainly seems to have accepted the company’s view of what was going on.” He said his client had not yet decided whether to pursue an appeal. Neal said that he didn’t think Hewlett regretted the battle, despite this outcome. “He had a pretty realistic assessment of what the odds were,” Neal said. Professor Frederick Tung, a corporate law specialist at the University of San Francisco School of Law, says the opinion is not “groundbreaking” as a legal precedent. “It’s simply a question of how the facts are construed,” he said. “At the end of the day it’s difficult for a court to upset the result of a proxy contest without stronger facts.” Susan Beck is a San Francisco-based senior writer for The American Lawyer , an affiliate of The Recorder and law.com.

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