Before most people, even the early birds, got to work in California Monday morning, HP had announced that its ranking Compaq legacy, former Compaq CEO Michael Capellas, had resigned from both his job as HP president, the operations guy who was supposed to execute Carly's grand vision, and from the HP board "to pursue other career opportunities."

The cat was evidently already out of the bag. Both the Wall Street Journal and the New York Times were atwitter that morning with the news that Capellas was in line to become CEO, and maybe chairman, of the bankrupt telecom mess WorldCom, home to the largest accounting scandal in US history, the company whose concocted fraudulent results are now climbing north of $9 billion. WorldCom officials said last week that there would be still more restatements, topping the historic $9 billion already admitted to.

WorldCom was supposedly surprised to hear that Capellas, who later confirmed that he had been approached, had been so precipitous with his resignation since it hadn't made a decision, wasn't supposed to tap a successor to interim CEO John Sidgmore until later this month and had a couple of other guys on its list of candidates, namely XO Communications CEO Daniel Akerson (XO is also operating under bankruptcy protection) and Bellsouth vice-chairman Gary Forsee, both of whom have way more experience in the telecom market.

The Journal reported that Capellas only had an "informal agreement" with the WorldCom board that he would get the job. However, apparently part of the reason for his abrupt resignation lies in his payout agreement with HP. And Capellas himself said he had other possibilities besides WorldCom.

HP, meanwhile, said that Carly would pick up Capellas' reports and that it would drop the office of president.

Now it's no surprise to anybody that Capellas has left HP, only his odd choice of exit door. Despite his promises to stick it out, the smart money always assumed he'd go and that it was only a matter of time - he actually made it to six months. How Carly manages on her own is another matter. Wall Street appeared to have its doubts. HP's stock took more than a 10% hit on the news. (The word you're searching for is tanked.)

HP's official statement claimed that it had reached a "natural transition point" and that it was "meeting or exceeding all of our integration targets." Carly, who could have made a counter-offer, said she fully supported Capellas' decision.

Employing what amounts to circular reasoning, Lehman Brothers analyst Dan Niles said he didn't think Capellas would leave if HPQ wasn't in good shape, noticing that its quarterly results, due next week, "should dispel any of those concerns." Niles believes the company's revenues are in good shape, that the US is improving, that Europe and Japan are turning around and that only HP's Unix and Tandem interests are weak.

Merrill Lynch analyst Steven Milunovich, who says HP's loss could be IBM's gain, thinks Capellas wants to be CEO - which Capellas said was true - not that it portends any problem with HPQ though, besides the difficulties with its enterprise unit, weak consumer spending could hurt printers, where it gets all its profits. Merrill is expecting HP to come in with F4Q revenues of $17.4 billion and earnings of 22 cents a share.

More to the point, Dell, which is embroiled in a pitched all-fronts battle against HP, must be loving this.

Thanks to Chapter 11 protection, WorldCom, described somewhere as a corporate Vietnam, has stopped servicing its debt and has cancelled many of its major purchase agreements. It currently has about $1.5 billion in the bank and a positive cash flow. It is still supposed to be negotiating severance with ousted CEO Bernie Ebbers, who's supposed to owe the company at least $400 million in loans - the assets he pledged as collateral are being seized but are reportedly worth way less than the loans - and the new CEO's compensation will have be approved by the bankruptcy court. Supposedly it won't match the $3.7 million Capellas got last year, but maybe Capellas won't care since leaving HP at this point - other than his stock options - is worth a total of $16.3 million to him, according to papers filed with the SEC over the summer, less a $2.5 million repayable loan from Compaq. Last December - in place of those huge retention bonuses he and Carly gave up - he renegotiated the separation pay he would get if he left HP before the end of this year.

Let's put that more clearly. He's getting paid a small fortune to quit. Pretty slick, huh.

Since Capellas cut his exit package before the HPQ merger closed and pretended that he was going to stick around and be a key player when he knew full well he wasn't - Walter Hewlett's HP board-denied claims of secret side agreements validated, by the way - folks who voted in favor of the merger - which was closer than the Florida presidential election, as they say on television - are feeling rooked.

Well, if it's any consolation, Jeffrey Sonnenfeld, the associate dean of Yale's School of Management, remarked to the Mercury News that "It's yet one more egregious abuse of HP corporate governance."

Capellas' turnaround skills can be debated; his hubris evidently can't. (Capellas' "once a CEO, always a CEO" argument of course is utter balderdash.) Before the fickle finger of fate elevated him to the Compaq CEO slot - because then-Compaq chairman Ben Rosen couldn't get anybody else - he was Compaq's unknown CIO, denizen of the back office. Compaq didn't start looking better until after it cut the takeover deal with HP and started instituting pre-merger reforms, raising questions about why Capellas waited so long to institute them.

However, even if Enron CEO Ken Lay was on the Compaq board, Capellas is perceived as clean, which is getting to be a rarer and rarer virtue these days and is basking in the reflected glory of getting the hard-won HP-Compaq merger done, a tribute that really belongs to Carly. There's a lot of chatter about WorldCom selling off its pieces and Capellas did sell Compaq for a pretty penny. Maybe that's why they're interested in him.

Meanwhile, Sidgmore, who's reportedly backing Capellas, told the Times the WorldCom name would probably be changed to MCI or something at some point.