Analysis of Merger Between Hp and Compaq

Topics: Compaq, Hewlett-Packard, Digital Equipment Corporation Pages: 9 (2678 words) Published: December 21, 2012
Key words: merger HP Compaq synergy1
1.Introduction of the case1
1.1 The Hewlett-Packard Company1
1.2 The Compaq Company2
1.3 Motives2
1.3.1 Strategic motives2
1.3.2 Financial motives3
Operating Synergy (mainly from cost savings)3
Contribution Margin3
2.HP’s Concerns4
2.1 Business portfolio4
2.2 Strategic problems4
2.3 Financial impacts4
2.4 Integration risk5
3.Analysis and solutions5
3.1 Stand-alone valuation5
3.2 Synergy valuation6
3.3 Premium valuation8
3.4 Valuation range9

  Hewlett-Packard Company is asking its shareholders to vote for its decision to acquire Compaq Company to achieve strategic benefits as well as financial benefits in the long run. But there are many concerns and problems with merger. We will provide the readers with an analysis of the projected strategic plan and valuation of synergy to prove that the deal so far is a good one. More detailed information is needed to further come up with a sound decision. Key words: merger HP Compaq synergy

1.Introduction of the case
1.1 The Hewlett-Packard Company
  Hewlett-Packard Company or HP is an American multinational information technology corporation headquartered in Palo Alto, California, United States. It provides products, technologies, software, solutions and services to consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. The company was founded in a one-car garage in Palo Alto by William (Bill) Redington Hewlett and Dave Packard. HP had been the world's leading PC manufacturer. It specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. Major product lines include personal computing devices, enterprise, and industry standard servers, related storage devices, networking products, software and a diverse range of printers, and other imaging products. HP markets its products to households, small- to medium-sized businesses and enterprises directly as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors. HP also has strong services and consulting business around its products and partner products.

1.2 The Compaq Company
  Compaq Computer Corporation was a company founded in 1982, that developed, sold and supported computers and related products and services. Compaq produced some of the first IBM PC compatible computers, being the first company to legally reverse-engineer IBM Personal Computer. It rose to become the largest supplier of PC systems during the 1990s before being overtaken by Dell in 2001. The company was formed by Rod Canion, Jim Harris and Bill Murto — former Texas Instruments senior managers. Murto departed Compaq in 1987, while Canion (President and CEO) and Harris (SVP of Engineering) left under a shakeup in 1991, which saw Eckhard Pfeiffer appointed President and CEO. Pfeiffer served through the 1990s. Ben Rosen provided the venture capital financing for the fledgling company and served as chairman of the board for 18 years from 1983 until September 28, 2000, when he retired and was succeeded by Michael Capellas, who served as the last Chairman and CEO until its merger with HP. Compaq’s products include desktops, notebooks, servers, telecommunication equipment, and softwares. Prior to its takeover the company was headquartered in a facility in northwest unincorporated Harris County, Texas, United States that now serves as HP's United States headquarters.

1.3 Motives
1.3.1 Strategic motives
  Before the merger, the HP and Compaq companies major business lines are as follows:

Company Major Business Lines
HPImaging & PrintingComputingIT Service
CompaqAccess (PCs)Enterprise ComputingGlobal Services

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