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A Delaware judge Tuesday cleared the way for Hewlett-Packard to buy Compaq, ruling that opponents failed to prove HP bullied a major shareholder or misled investors in the nasty proxy fight over the fate of the largest merger ever in the tech industry. "The evidence demonstrates that HP's statements concerning the merger were true, complete, and made in good faith," Chancery Court Judge William B. Chandler wrote in his ruling, which followed a three-day trial last week in Wilmington.
Walter Hewlett, son of HP co-founder William Hewlett and the one who filed suit to stop the $18.4 billion merger, said in a statement that he was disappointed in the ruling, but had not decided his next step. Hewlett can appeal the ruling to the Delaware Supreme Court. Palo Alto, Calif.-based HP and Houston-based Compaq have said they will begin working together May 7. An HP spokeswoman said the company is "gratified" by the ruling and looks forward to moving ahead.
Analysts say both companies needed to move ahead against competitors, and the ruling will help them do that. "They've gone too far to pull back out, and going through with the merger is better than living in this purgatory," says Rob Enderle, a Giga Information Group analyst. The proxy fight, which at times became personal attacks between Hewlett and HP management, led by CEO Carly Fiorina, has damaged the company by dividing employees, shareholders, and customers. HP will need to bring all sides together in order to regain the market share lost to competitors, particularly IBM and Dell Computer, Enderle says. "IBM and Dell have reported sales wins as a result of this, and Dell's projections are based on a large part from the wins it expects to get."
Chandler's ruling concluded that Hewlett failed to prove that HP threatened to withhold future investment banking business from Deutsche Bank unless the investment firm switched its vote to favor the merger. In addition, the judge said opponents failed to show that HP lied to investors about the chances the Compaq merger would generate its promised financial benefits. Shareholders approved the merger by a slim margin March 19. Hewlett filed suit nine days later and was later ousted from the HP board of directors.
Whether or not he appeals the ruling, Hewlett said in a statement he would remain involved in the company as director of the William and Flora Hewlett Foundation and a trustee of the William R. Hewlett Revocable Trust, both major stockholders. Said Hewlett, "I will continue to monitor the company's performance to ensure that it acts in the best interest of all stockholders."