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. Last Updated: 07/27/2016

HP, Compaq Merger Under Investigation

SAN FRANCISCO -- Federal investigators have opened civil and criminal inquiries into reports that Hewlett-Packard Co. might have pressured Deutsche Bank and Northern Trust Corp. improperly to vote in favor of the computer maker's $19 billion acquisition of Compaq Computer Corp., HP said Monday.

The probes renewed doubts that the largest technology merger in history will be consummated.

"If in fact HP top management made a credible threat to Deutsche Bank to withdraw business unless they voted HP's way, that would be a serious breech of fiduciary duty,'' said Reinier Kraakman, professor of law at Harvard University. "It's akin to stuffing ballot boxes.''

Just before the March 19 voting deadline, HP announced a $4 billion line of credit that would be co-arranged by Deutsche Bank. Then Deutsche Asset Management, the bank's investment unit, switched 17 million votes to favor the merger.

In a statement, HP acknowledged receiving a subpoena on April 10 from the U.S. attorney's office for New York's Southern District, demanding information about the company's interactions with Deutsche Bank, Northern Trust and other parties. A subpoena from the U.S. attorney's office points to a criminal investigation by the Justice Department.

In a separate civil action, the San Francisco office of the Securities and Exchange Commission requested similar documents regarding Deutsche Bank, but has not alleged any legal violations, HP said.

The company denied any improprieties, but declined to comment further. Representatives of the U.S. Attorney and SEC also declined to comment.

Last month HP claimed victory in the merger vote by a razor-thin margin; final results are expected in the next few weeks.

The federal actions might have been prompted by claims by dissident HP director Walter Hewlett, who filed a lawsuit challenging the legality and fairness of the merger vote.

Hewlett, a major shareholder and son of late company co-founder William Hewlett, claims that HP officers might have orchestrated improper efforts to persuade large shareholders to support the contentious merger plan.

The allegations of impropriety gained steam last week when a voicemail message from Carly Fiorina, HP's chief executive, to chief financial officer Robert Wayman, was surreptitiously forwarded to a reporter for the San Jose Mercury News.

"We've seen a piece of [Northern Trust's] votes move against us, and we're nervous,'' she said. "We may have to do something extraordinary for [Deutsche Bank and Northern Trust] to bring them over the line.''

HP confirmed the message's authenticity and is investigating how its voice mail system was breached.

Jesse Choper, a law professor at the University of California at Berkeley, cautioned against reading too much into Fiorina's voice message. "There are all kinds of lawful 'extraordinary' measures that could be taken,'' he said.

Deutsche Bank and Northern Trust could not be reached for comment.