## Facts

- Hewlett-Packard Company (HP) entered a merger agreement with Compaq Computer Corporation, requiring HP stockholder approval for issuance of shares in the transaction.
- The merger announcement triggered a material decline in HP’s stock price and an intense proxy contest between HP management and stockholders opposing the deal, including Walter B. Hewlett and related trusts.
- On March 19, 2002, HP stockholders approved the share issuance by a very slim margin.
- The opposing stockholders filed an action under 8 Del. C. § 225(b) seeking a declaration that the stockholder vote was invalid.
- Plaintiffs alleged HP improperly influenced Deutsche Bank, which held proxies for roughly 25 million shares, by implying that future HP business depended on Deutsche Bank voting for the merger; Deutsche Bank allegedly changed about 17 million shares to favor the merger near the meeting date.
- Plaintiffs also alleged materially misleading disclosures and omissions about merger synergies, savings, and integration readiness, including failure to disclose internal or advisor concerns that projections were overly optimistic.
- Plaintiffs asserted the alleged misstatements influenced large institutional voting blocks, including Barclays Global Investors, which allegedly voted approximately 60 million shares in favor of the merger.

## Issues

1. Whether a DGCL § 225(b) proceeding can be used to challenge the validity of a statutorily required stockholder vote on the ground that it was procured by inequitable conduct.
2. Whether the complaint stated a claim that the merger vote was invalid due to alleged vote-buying or coercion affecting Deutsche Bank’s proxies.
3. Whether the complaint stated a claim that materially false or misleading disclosures in proxy solicitations tainted the stockholder vote and could support equitable relief setting it aside.
4. Whether the pleaded allegations sufficiently connected the alleged misconduct to an outcome-determinative effect given the close vote.

## Decision

- The Court of Chancery denied HP’s motion to dismiss.
- The court held the complaint pleaded colorable claims that the merger vote could be invalidated if obtained through inequitable means, including coercive vote manipulation or materially misleading disclosures.
- The court permitted the case to proceed on an expedited basis toward a merits determination in the § 225 action.

## Legal Principles

- DGCL § 225(b) authorizes a summary proceeding to adjudicate the validity of stockholder votes and related corporate action where the integrity of the voting process is challenged.
- Corporate action approved by stockholders may be set aside in equity if the approval was procured through fraud, misrepresentation, or improper manipulation undermining the electoral process.
- Vote-buying or coercion—such as offering or threatening corporate business advantages to induce a particular vote—can constitute inequitable conduct capable of tainting a stockholder vote.
- Fiduciaries soliciting stockholder action must not make materially false or misleading statements or omit material facts necessary to make disclosures not misleading; pleading specific misstatements/omissions and a plausible causal connection can support relief affecting a vote.
- A very close voting margin increases the plausibility that misconduct affecting large proxy blocks could have changed the result, supporting materiality and causation at the pleading stage.

## Conclusion

The court allowed a DGCL § 225(b) challenge to proceed where plaintiffs plausibly alleged that coercive pressure on a proxy holder and materially misleading merger disclosures may have tainted a razor-thin stockholder vote approving share issuance for a major merger.


Hewlett v. Hewlett-Packard Co., 2002 WL 549137 (Del. Ch. Apr. 8, 2002)