Mergers and Acquisition – A Case Examine and Evaluation of HP-Compaq Merger

Transient Description

The next is a quick description of the 2 corporations:


All of it started within the 12 months 1938 when two electrical engineering graduates from Stanford College known as William Hewlett and David Packard began their enterprise in a storage in Palo Alto. In a 12 months’s time, the partnership known as Hewlett-Packard was made and by the 12 months 1947, HP was integrated. The corporate has been prospering ever since as its earnings grew from 5 and half million in 1951 to about three billion in 1981. The tempo of progress knew no bounds as HP’s internet income went as much as 42 billion in 1997. Beginning with manufacturing audio oscillators, the corporate made its first laptop within the 12 months 1966 and it was by 1972 that it launched the idea of non-public computing by a calculator first which was additional superior into a private laptop within the 12 months 1980. The corporate can also be recognized for the laser-printer which it launched within the 12 months 1985.


The corporate is best generally known as Compaq Laptop Company. This was firm that began itself as a private laptop firm within the 12 months 1982. It had the allure of being known as the most important producers of non-public computing gadgets worldwide. The corporate was shaped by two senior managers at Texas Devices. The title of the corporate had come from-“Compatibility and High quality”. The corporate launched its first laptop within the 12 months 1983 after at a worth of 2995 . Despite being transportable, the issue with the pc was that it gave the impression to be a suitcase. However, there have been enormous business advantages from the pc because it offered greater than 53,000 models within the first 12 months with a income technology of 111 million .

Causes for the Merger

A quite simple query that arises right here is that, if HP was progressing at such an incredible tempo, what was the rationale that the corporate needed to merge with Compaq? Carly Fiorina, who turned the CEO of HP within the 12 months 1999, had a key function to play within the merger that passed off in 2001. She was the primary girl to have taken over as CEO of such a giant firm and the primary outsider too. She labored very effectively as she travelled greater than 250,000 miles within the first 12 months as a CEO. Her fundamental goal was to modernize the tradition of operation of HP. She laid nice emphasis on the worthwhile sides of the enterprise. This exhibits that she was very extravagant in her method as a CEO. Despite the expansion out there worth of HP’s share from 54.43 to 74.48 , the corporate was nonetheless inefficient. This was as a result of it couldn’t meet the targets as a result of a failure of each firm and trade. HP was compelled to chop down on jobs and in addition be eluded from the privilege of getting Worth Water Home Cooper’s to handle its audit. So, even the job of Fiorina was underneath risk. This meant that enchancment within the inside methods of the corporate was not going to be enough for the corporate’s success. Finally, the corporate needed to definitely plan out one thing completely different. So, it was determined that the corporate could be buying Compaq in a inventory transaction whose internet price was 25 billion . Initially, this merger was not deliberate. It began with a telephonic dialog between CEO HP, Fiorina and Chairman and CEO Compaq, Capellas. The concept behind the dialog was to debate on a licensing settlement nevertheless it continued as a dialogue on aggressive technique and eventually a merger. It took two months for additional research and by September, 2001, the boards of the 2 corporations permitted of the merger. Despite the choice coming from the CEO of HP, the merger was strongly opposed within the firm. The 2 CEOs believed that the one approach to combat the rising competitors when it comes to costs was to have a merger. However the traders and the opposite stakeholders thought that the corporate would by no means have the ability to have the loyalty of the Compaq clients, if merchandise are offered with an HP brand on it. Aside from this, there have been questions on the synchronization of the group’s members with one another. This was due to the change within the group tradition as effectively. Despite the fact that these had been alleged to severe issues with respect to the merger, the CEO of HP, Fiorina justified the identical with the truth that the merger would take away one severe competitor within the over-supplied PC market of these days. She mentioned that the market share of the corporate is certain to extend with the merger and in addition the working unit would double. (Hoopes, 2001)

Benefits of the Merger

Despite the fact that it gave the impression to be advantageous to only a few individuals to start with, it was the sturdy willpower of Fiorina that she was capable of stand by her resolution. Wall Road and all her traders had gone towards the corporate lampooning her concepts with the saying that she has made 1+1=1.5 by her extravagant methods of growth. Fiorina had put it this fashion that after the corporate’s merger, not solely wouldn’t it have a bigger share out there but additionally the models of manufacturing would double. This might imply that the corporate would develop tremendously in quantity. Her dream of competing with the giants within the area, IBM would additionally come true. She was of the view that a lot of the redundancy within the two corporations would lower as the inner prices on promotion, advertising and transport would come down with the merger. This might produce the slightest hurt to the gathering of income. She used the concepts of aggressive positioning to justify her plans of the merger. She mentioned that the merger relies on the ideologies of consolidation and never on diversification. She may additionally defend allegations towards the change within the HP was. She was of the view that the HP has at all times inspired adjustments as it’s about innovating and taking daring steps. She mentioned that the corporate requires being in step with creativity, enchancment and modification. This merger had the aptitude of offering precisely the identical. (Mergers and Acquisitions, 2010)

Benefits to the Shareholders

The next are the methods during which the corporate might be advantageous to its shareholders:

Distinctive Alternative: The place of the enterprise is certain to raised with the merger. The explanation for a similar was that now the worth creation could be contemporary, management qualities would enhance, capabilities would enhance and so would the gross sales and in addition the corporate’s strategic differentiation could be higher than the prevailing opponents. Aside from this, one may also entry the capabilities of Compaq instantly therefore decreasing the price construction in changing into the most important within the trade. Lastly, one may additionally see a possibility in reinvesting.

Stronger Firm: The profitability is certain to extend within the enterprise, entry and providers sectors in excessive levels. The corporate may also see a greater alternative in its analysis and growth. The monetary circumstances of the corporate with respect to its EBIT and internet money are additionally on the incremental facet.

Compelling Economics: The anticipated accumulation in IIP positive aspects could be 13% within the first monetary 12 months. The corporate may additionally conduct a greater segmentation of the market to forecast its revenues technology. This might go to as a lot as 2 and a half billion of annual synergy.

Capacity to Execute: As there could be integration within the planning procedures of the corporate, the possibilities of worth creation would even be enormous. Together with that the expertise of main a diversified worker construction would even be there. (HP to purchase Compaq, 2001)

Opposition to the Merger

Actually, it was solely CEO Fiorina who was in favor of going with the merger. It is a sensible software of Company downside that arises due to change in monetary methods of the corporate house owners and the administration. Fiorina was sure to lose her job if the merger did not take impact. The explanation was that HP was not capable of meet the demand targets underneath her management. However the house owners had been towards the merger as a result of following beliefs of the house owners:

The brand new portfolio could be much less preferable: The place of the corporate as a bigger provider of PCs will surely enhance the quantity of threat and contain loads of funding as effectively. One other vital motive on this context is that HP’s prime curiosity in Imaging and Printing wouldn’t exist anymore because of this diluting the curiosity of the stockholders. Actually the corporate house owners additionally really feel that there could be a decrease margin and ROI (return on funding).

Strategic Issues would stay Unsolved: The market place in high-end servers and providers would nonetheless stay regardless of the merger. The worth of the PCS wouldn’t come right down to be inexpensive by all. The requisite change in materials for imaging and printing additionally wouldn’t exist. This merger would don’t have any impact on the low finish servers as Dell could be there within the lead and high-end servers both the place IBM and Solar would have the lead. The corporate would even be eluded from some great benefits of outsourcing due to the excess labor it might have. So, the standard is just not assured to enhance. Lastly, the merger wouldn’t equal IBM underneath any situation as thought by Fiorina.

Large Built-in Dangers: There have been no examples of success with such enormous mergers. Typically when the market does not assist such mergers, do not do effectively as is the case right here. When HP couldn’t handle its group correctly, integration would solely add on to the difficulties. It could be much more tough underneath the circumstances due to the prevailing competitions between HP and Compaq. Being susceptible to such dangerous circumstances, the corporate would additionally need to range its prices inflicting higher hassle for the proprietor. The largest issue of all is that to combine the tradition present within the two corporations could be a really tough job.

Monetary Influence: That is largely as a result of the market reactions are damaging. Alternatively, the place of Compaq was completely completely different from HP. As the corporate would have a higher contribution to the income and HP being diluted on the identical time, the issues are certain to develop. This might imply that drawing cash from the fairness market would even be tough for HP. Actually this may not appear to be a really worthwhile merger for Compaq as effectively sooner or later.

The fundamental downside that the house owners of the corporate had with this merger was that it might hamper the core values of HP. They felt that it’s higher to protect wealth moderately than to threat it with extravagant threat taking. This excessive threat profile of Fiorina was slightly unacceptable for the house owners of the corporate in gentle of its prospects.

So, so far as this merger between HP and Compaq is anxious, on facet there was this sturdy willpower of the CEO, Fiorina and on the opposite facet was the sturdy opposition from the corporate house owners. This opposition continued from the market together with all of the traders of the corporate. So, this sensible Company downside was very well-known contemplating the truth that it contained two of probably the most highly effective corporations on the earth. There have been various choices like Change Administration, Financial smart Administration, and Organizational Administration which could possibly be thought of to investigate the difficulty. However this case research might be solved finest by a method smart evaluation. (HP-Compaq merger faces stiff opposition from shareholders inventory costs fall once more, 2001)

Strategic Evaluation of the Case

Constructive Facets

A CEO will at all times take into account such a merger to be an event to take a aggressive benefit over its rivals like IBM as on this case and in addition be of some curiosity to the shareholders as effectively. The next are the methods which can be associated to this merger between HP and Compaq:

* Having an eye fixed over shareholders’ worth: If one sees this merger from the eyes of Fiorina, it might make certain that the shareholders have so much to achieve from it. The explanation for a similar is the increment within the management of the market. So, even of the circumstances weren’t appropriate from the monetary perspective, this fact will surely make loads of earnings for the corporate sooner or later.

* Improvement of Markets: Two organizations get entangled in mergers as they wish to increase their market each on the home and the worldwide stage. Integration with a home firm does not want a lot effort however when an organization merges internationally as on this case, a difficult activity is on head. A radical state of affairs scanning is important earlier than placing your toes in Worldwide area. Right here, the competitor for HP was Compaq to a big diploma, so this merger definitely required loads of pondering. Organizations merge with the worldwide corporations as a way to arrange their manufacturers first and let individuals learn about what they’re able to and in addition what they eye sooner or later. That is the rationale that after this merger the merchandise of Compaq would even have the emblem of HP. As soon as the market is well-known, then HP wouldn’t need to endure the branding created by Compaq. They’d have the ability to draw all the purchasers of Compaq as effectively.

* Propagated Efficiencies: Any firm by buying one other or by merging makes an try so as to add to its efficiencies by growing the operations and in addition having management over it to the utmost extent. We are able to see that HP would now have an elevated set of staff. The one issue is that they must be managed correctly as they’re of various organizational cultures. (Advantages of Mergers:, 2010)

* Allowances to make use of extra assets: An improvised group of financial assets, mental capital and uncooked supplies provides a aggressive benefit to the businesses. When such corporations merge, most of the intellects come collectively and work in direction of a standard mission to excel with monetary earnings to the corporate. Right here, one cannot deny the truth that even the highest brains of Compaq could be participating in forming the methods of the corporate sooner or later.

* Administration of dangers: If we significantly take an instance of this case, HP and Compaq getting into into this merger can lower the chance stage they’d have diversified enterprise alternatives. The choices for making alternative of the availability chain additionally enhance. Now despite the fact that HP is a pioneer in inkjet orienting, it might not have to make use of the Product based mostly Facility structure which is costlier. It may possibly handle the chance of taking course of based mostly facility structure and make issues cheaper. Manufacturing and Processing can now be performed in numerous nations in line with the price viability as the main difficulty.

* Itemizing potential: Despite the fact that Wall Road and all of the traders of the corporate are towards the merger, when IPOs are provided, a growth will certainly be there due to the flourishing earnings and turnover worth which HP could be making with this merger.

* Vital political rules: When organizations take a leap into different nations, they should take into account the completely different rules in that nation which administer the insurance policies of the place. As HP is already a pioneer in all of the international locations that Compaq used to do its enterprise, this might not be of a lot problem for the corporate. The corporate would solely have to make sure minor rules with the political events of some international locations the place Compaq was flourishing greater than HP.

* Higher Alternatives: When corporations merge with one other firm, later they will put up on the market as per because the wants of the corporate. This may be performed partially. If HP feels that it might not want a lot of warehouse house it will probably promote the identical at elevated earnings. It relies on whether or not the corporate would now be regarded a s a make to inventory or a make to order firm.

* Further merchandise, providers, and amenities: Companies get copyrights which boosts the extent of commerce. Extra Warehouse providers and distribution channels supply enterprise values. Right here HP can use all such values built-in with Compaq in order to extend its prospects. (Berry, 2010)

Destructive Facets

There are a selection of mergers and acquisitions that fail earlier than they really begin to perform. Within the vital section of implementation itself, the businesses come to know that it might not be useful in the event that they proceed as a merger. This could happen on this merger between HP and Compaq as a result of following causes.

Conversations are usually not applied: Due to in contrast to cultures, ambitions and threat profiles; most of the offers are cancelled. As per because the reactions of the house owners of HP, this appears to be extraordinarily probably. So, motivation amongst the staff is a particularly vital consideration on this case. This requires an additional effort by the CEO, Fiorina. This might additionally assist her keep her place within the firm.

Authorized Contemplations: Anti-competitive offers are sometimes restricted by the foundations presiding over the competitors guidelines in a rustic. This results in out of order functioning of 1 firm they usually attempt to separate from one another. Lots of pointless advertising failures get hooked up to those circumstances. If this occurs on this case, then all that cash which went in publicizing the enterprise would go to be a waste. Furthermore, much more could be required to re-promote as a single entity. Even the packaging the place all the stock from Compaq had the emblem of HP must be re-done, thus hampering the finance even additional. (Broc Romanek, 2002)

Compatibility issues: Each firm runs on completely different platforms and concepts. Compatibility issues usually happen due to synchronization points. In IT corporations akin to HP and Compaq, many issues can happen as a result of each the businesses have labored on completely different methods up to now. Now, it may not appear obligatory for the HP administration to make adjustments as per as these from Compaq. Thus such issues have turn into of best concern as of late.

Fiscal catastrophes: Each the businesses after signing an settlement hope to have some return on the cash they’ve put in to make this merger occur and in addition want profitability and turnovers. If as a result of any motive, they aren’t capable of attain that place, then they develop a abhorrence sense in direction of one another and in addition begin charging one another for the failure.

Human Useful resource Variations: Issues on account of cultural dissimilarities, hospitality and hostility points, and in addition different conduct associated points can take aside the origin of the merger.

Lack of Willpower: When organizations contain, they’ve plans of their minds, they’ve a imaginative and prescient set; however due to quite a lot of issues as talked about above, growth of the mixed firm to perform its mission is delayed. Merged corporations set the objective and when the objective is just not achieved as a result of some faults of any of the 2; then each of them develop a sure diploma of hatred for one another. Additionally clashes can happen due to bias reactions. (William, 2008)

Danger administration failure: Corporations which can be concerned in mergers and acquisitions, turn into over assured that they will make a revenue out of this resolution. This may be seen as with Fiorina. Actually she will be able to combat the entire world for that. When their self-confidence seems into over-confidence then they fail. Ample threat administration strategies ought to be adopted which might handle the consequences if the choice takes a downturn. These threat insurance policies ought to rule fiscal, productions, advertising, manufacturing, and stock and HR dangers related to the merger.

Strategic Sharing

Advertising and marketing

Hp and Compaq would now have frequent channels so far as their shopping for is anxious. So, the advantages on this concern is that even for these supplies which had been initially of excessive value for HP would now be accessible at a less expensive worth. The tip customers are additionally more likely to enhance. Now, the corporate can re body its aggressive technique the place the best concern might be given to all time rivals IBM. Some great benefits of this merger within the area of selling might be seen within the case of shared branding, gross sales and repair. Even the distribution process is more likely to be enhanced with Compaq taking part in its half. Now, the corporate can sit up for cross promoting, subsidization and in addition a lowered value.


The foremost benefit on this space is that within the location of uncooked materials. Even the processing type could be identical making the services synchronized with the concepts and in addition in making a good operational technique. Because the philosophical and mechanical management would even be in frequent, the operational technique would now be to turn into the highest most out there. On this respect, the 2 corporations would now have co-production, design and in addition location of workers. So, the operational technique of HP would now be to make use of the method based mostly facility structure and performance with the talked about shared values.


The technical technique of the corporate can be designed in frequent now. There’s a drawback from the angle of the differentiation that HP had within the area of inkjet printers however the benefits are additionally plentiful. With a standard product and course of know-how, the technological technique of the merged firm would promote extremely economical functioning. This may be performed by way of a standard analysis and growth and designing staff.

Shopping for

The shopping for technique of the corporate would additionally observe a standard mechanism. Right here, the uncooked supplies, equipment, and energy could be frequent therefore reducing the price as soon as once more. This may be performed by way of a centralized mechanism with a lead purchaser holding frequent insurance policies in thoughts. Now Hp must assume with an analogous perspective for each inkjet printers in addition to private computer systems. It is because the parameters for manufacturing would additionally run on equal grounds.


That is crucial a part of the methods that may be made after the merger. The businesses would have frequent shareholders for offering the requisite infrastructure. The capital supply, administration type, and laws would even be in frequent. So, the infrastructure methods must take this stuff under consideration. This may be performed by having a standard accounting system. HP does have an choice to have a separate accounting system for the merchandise that it manufactures however that may solely arouse an inside competitors. So, the infrastructural advantages might be made by way of a standard accounting, authorized and human useful resource system. This might be certain that the funding relations of the corporate would enhance. Not one of the Compaq traders would hesitate in investing if HP follows a standard technique.

HP would now have to make sure one other proven fact that with this merger they’d have the ability to show opponents to the current goal and people of opponents like IBM as effectively. Even the operations and the output market must be above what exists at current. The corporate wants to make sure that the company technique that it makes use of is environment friendly sufficient to assist such a future. The diploma of diversification must be managed completely as effectively. It is because; the merchandise from the 2 corporations have carried out exceptionally effectively up to now. So, probably the most optimum diploma of diversification is required underneath the context in order that the corporate is ready to meet the calls for of the purchasers. This has been challenged by the house owners of HP however must be carried by the CEO Fiorina. (Bhattacharya, 2010)

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