Hp Compaq Merger

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THE HEWLETT-PACKARD AND COMPAQ MERGER

LIST OF TOPICS
S. No.| TOPIC|
1| Executive Summary|
2| The IT Industry Profile|
3| Introduction to the Company Profile – HP and Compaq| 4| Pre-Merger stats for HP and Compaq|
5| Relative Performance of HP and Compaq|
6| HP-Compaq Merger|
7| Objectives of the Merger|
8| Expectations from the Merger of HP and Compaq|
9| Key Points that encouraged the Merger Decision|
10| Advantages of Merger and Opposition to the Merger|
11| Considerations for Merger|
12| Summary of Deal|
13| Type of Merger|
14| Deal Valuation|
15| New Leadership|
16| Strategic Analysis and Strategic Sharing|
17| The Integration Planning Process|
18| Due Diligence : Assessing the Cultural Differences|
19| The Values and Corporate Objectives of the New HP|
20| Capital Structure – Before and After merger|
21| Analysis of the Merger|
22| HP Today|
23| Conclusion|
EXECUTIVE SUMMARY
The world’s largest corporate Information Technology merger began in September 2001 when HP announced that they would acquire Compaq in an all stock purchase valued at $25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder and regulatory approval with the end result being one company. The new HP has annual sales of approximately $90 billion which is comparable to IBM, and an operating income of almost $4 billion. The merger was led by Carly Fiorina, the chairwoman and CEO of HP. The president of the new HP was Michael Capellas who was the former chairman and CEO of the old HP and who has recently resigned and is now the CEO of World Com. Overall, many analysts were critical of the merger from the beginning since both Compaq and HP were struggling companies before the merger. The common question that has been raised by analysts is: Do two struggling companies make a better merged company? Some analysts have indicated that the merger is a gamble and that it is difficult to see any focused logic behind the merge considering that most I.T acquisitions are not successful. Prior to the merger, Compaq has been unable to grow despite previously buying Digital, while HP was trying to grow internally, without much success. Both companies were still adjusting to acquisitions they have made in the past and both were adjusting to new leadership (Fiorina and Capellas). The merger deal also means that there are many overlaps in products, technologies, distribution channels, services, facilities and jobs. Employee morale is a threat to a successful merger as there have been numerous layoffs -15,000 employees. The claimed annual cost savings of about $2.5 billion dollars by the year 2004 amounts to only 3 % of the combined costs of both companies. Gartner Group research has indicated that the merged company has failed to do a good enough job of presenting the benefits of an acquisition of this scale to justify the deal’s risk as it is generally known that technology mergers rarely work. In addition, both companies in the past have struggled to resolve conflicts between direct and indirect sales channels. The cultural background of both companies is quite different and integration will take a long time. The culture at HP is based on consensus; Compaq’s culture on the other hand is based on rapid decision making. From a positive perspective, most botched tech mergers involved companies that were trying to buy their way into new businesses they knew little about, this is not the case with the HP/Compaq merger. Apart from servers and PC’s, they have several areas where their products overlap e.g.: they are both are involved in making data -storage equipment and both make hand held computing devices. In addition, both companies also bring different strengths to the table. Compaq has done a better job in regard to engineering an entire line and HP has been strong in consumer products. The justification provided by HP senior...
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