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Barron's, February 19, 2011 article



Plugged In  |   SATURDAY, FEBRUARY 19, 2011

HP Deal Raises Questions


Hewlett-Packard's agreement last week to acquire Vertica, a business-software outfit, raises questions about possible conflicts of interest and how HP's Balkanized board addressed potential inside dealing.

HP's nonexecutive chairman, Ray Lane, is a minor venture investor in Vertica, a closely held Billerica, Mass., firm whose products let businesses analyze large amounts of data. Lane, the former No. 2 at Oracle, is a partner at Silicon Valley venture powerhouse Kleiner Perkins Caufield & Byers, which has about a 5% stake in Vertica.

In a telephone interview Friday, Lane told Barron's that KPCB was a "passive" investor in Vertica, and that neither he nor any other partners were actively involved with that company or its operations. "We made the investment and never looked back. I've never even met the CEO," Lane said. "By my calculations, this is a very small return" for KPCB, Lane added. Neither he nor an HP spokeswoman would disclose a purchase price. Lane told the Dow Jones VentureWire that Vertica sold for about $320 million.

Lane, named chairman in November, said he first learned that Hewlett-Packard (ticker: HPQ) had a potential interest in Vertica when he attended his first joint meeting of HP's technology and finance committees. He then saw Vertica's name on a long list of potential acquisition targets. Lane said he disclosed that KPCB was an investor in the software firm: "I said at the time [that] I shouldn't have anything to do with this. I was never involved in the deal."

The full HP board didn't vote to approve the Vertica purchase because it wasn't large enough to merit a full vote, Lane said. He asserts that he didn't need to recuse himself because he didn't sit on the committee that approved the deal. The transaction was approved by an unspecified board committee. An HP spokesman wouldn't disclose which committee was involved, adding that under Lane and new CEO Leo Apotheker, the company would attempt to keep board business from being reported in the press. This comes after a series of scandals involving director leaks, spying on reporters and CEO Mark Hurd's forced resignation.

The company wouldn't elaborate on what role the board's governance committee, led by lame-duck director Lucille Salhany, played, if any. But an HP spokeswoman said: "Ray Lane wasn't involved in any formal decision taken by the company in this transaction." HP denied Barron's request to obtain a copy of the board's minutes.

Transactions involving potential conflicts aren't uncommon in the corporate world. For example, News Corp. (NWSA), the parent of Barron's, is considering purchasing Shine Group, a London-based TV-programming outfit owned by News Corp. CEO Rupert Murdoch's daughter, Elisabeth.

However, to pass corporate-governance muster, such deals must be handled openly. HP, in announcing the deal, mentioned nothing about KPCB or Lane's relationship to that firm. Asked about that, the spokeswoman declined to comment.

Says investment banker Gary Lutin, head of the Shareholder Forum, a corporate-governance advocacy group. "Anyone considering an investment or voting decision really needed to know how the HP board satisfied its duties to keep secret information from a chairman with conflicting interests, and how they prevented his influencing their independent judgment. This would be a challenge for any company, but it's an especially great concern for one with HP's history of board leaks and purges."  


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