Opening up about HP

Amid an escalating war of words with Hewlett-Packard's board, Walter Hewlett tells the inside story behind his opposition.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
5 min read
For someone portrayed by Hewlett-Packard as a "musician and academic," Walter Hewlett has shown critics he also knows a thing or two about fisticuffs.

See special coverage: A Fight to the Finish An HP board member himself, the 57-year-old son of one of the company's co-founders created shockwaves last November when he launched a public battle to oppose the pending $22 billion acquisition of Compaq Computer.

That set off months of skirmishes between the two camps, marked by aggressive marketing campaigns and sharply worded letters between the company's board and Hewlett, each painting the other as being in the wrong.

As the mega-deal heads for a shareholder vote next month, the war of words is escalating. In the latest salvo, board directors again criticized Hewlett, this time for his comments suggesting that HP Chief Executive Carly Fiorina resign if the merger fails. They also denounced his characterization of the length of time the two companies discussed the prospect of a combination.

But Hewlett says he's opening his eyes as he makes the rounds of institutional investors and tries to convince Wall Street to oppose the merger. Indeed, Hewlett's critics may have underestimated him. Since coming out in opposition, he has effectively communicated his message through the media, forcing the board of directors to play catch-up.

Hewlett recently talked to CNET News.com about his lobbying effort, his relationship with Fiorina, and his assessment of the company's future without a merger.

Q: What do you think your father, if he were still alive, would say about your actions to date and those of HP?
A: I will not speculate on what my father would say. My father would have studied this issue more than the HP board has done. My father and Dave (Packard) would not have raced to get this deal done--a deal in which I think HP was out-negotiated.

The claim that my suggestions were considered, debated and rejected defies the record and (defies) common sense. HP says it has heard, debated and rejected your previous ideas presented to the board regarding the merger and growing HP's business. How would you characterize the way these discussions have gone? Do you feel your opinions were truly heard and valued?
The claim that my suggestions were considered, debated and rejected defies the record and common sense...(However), I have always had good relations with all the board members and have been an active board member.

Do you find yourself repeatedly outnumbered on board votes? And, as a result, do you resign yourself to going along with the majority? Do you prefer to avoid confrontation, as some have said?
The board votes on very few things. When (Director) Dick Hackborn said he wanted to step down as chairman and said he wanted Carly to be chair and CEO, I said I had a different view. I thought the board should have a non-executive chair. I then said, if not, we should have an outside lead director, so if directors want to have a private discussion, the lead could call the board in private session.

The rest of the board decided that was not what they wanted. There are a couple of places where I had one view and the board had another...(But) in the case of the PricewaterhouseCoopers merger...the vote was unanimous.

At a board meeting a couple of weeks ago, sources said you voted along with the rest of the directors to give Fiorina the highest rating possible for her performance review. But recently you have publicly stated that you think the company would be better served if she stepped down, if the merger is not approved. Can you explain your thoughts on what would seem to be two conflicting actions?
The vote was not unanimous. I didn't give Carly the same rating as the other directors. And it was discussed during a private session...I can't discuss it.

Some have said you had a falling-out with Fiorina long before the HP-Compaq merger was proposed. How would you describe the relationship before the merger talks?
After the PricewaterhouseCoopers deal (fell apart due to market conditions), Carly said HP would focus back on its businesses, and revenues would grow 17 percent in the next year (2001). I enthusiastically endorsed that and personally bought 200,000 shares...and spent $6.8 million, which I think showed more than enough confidence in Carly.

But HP missed its numbers in the January quarter and missed its numbers in the April quarter. Then she talked about a merger with Compaq, and it was like a bombshell hit. It came out of the blue. The claim that HP (will be stronger from the deal)...(is) pure fantasy.

I'm a marathon runner and we're at the 10-mile mark of what happens to be a 26-mile race. Some of your critics have described you as averse to change. How would you characterize yourself?
We have met with investors, and the feedback from them...has been...that I am not like anything that my critics have tried to characterize (me as).

And what kind of response have you gotten from investors?
They have responded positively to the message...Shareholders are concerned with the negative effect the merger will have on their holdings.

Do you have enough support to stop the merger if the vote were held today?
I'm a marathon runner, and we're at the 10-mile mark of what happens to be a 26-mile race. We're running at a good pace.

Where is your next growth engine for HP, given Wall Street analysts' note that the printer business you want to expand is a commodity business that may one day go the way of low-margin PCs?
I think the printer and imaging business is a great growth engine. Some of the growth is as high as 25 percent...10 to 13 percent profit margins...great technology, great IP (intellectual property)...I see this and other opportunities as a growth engine.

When you look at growing HP, can you give the general types of companies you think HP should acquire?
I think HP needs to make focused and strategic acquisitions...for example, in services and high-end consulting, and software and middleware that builds on a strong Unix position. We are also poised to grow with the Itanium chip that we co-developed with Intel. I think strategic, smaller acquisitions will fill the gaps.

In regard to the merger, what would you do differently if you had this to do over again?
I don't believe in turning back the clock. I believe in looking forward.