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



Temporary Description

The next is a short description of the 2 firms:


All of it started within the 12 months 1938 when two electrical engineering graduates from Stanford College referred to as William Hewlett and David Packard began their enterprise in a storage in Palo Alto. In a 12 months’s time, the partnership referred to as Hewlett-Packard was made and by the 12 months 1947, HP was integrated. The corporate has been prospering ever since as its income grew from 5 and half million in 1951 to about three billion in 1981. The tempo of development 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 pc within the 12 months 1966 and it was by 1972 that it launched the idea of private computing by a calculator first which was additional superior into a private pc 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 often known as Compaq Pc Company. This was firm that began itself as a private pc firm within the 12 months 1982. It had the allure of being referred to as the most important producers of private computing units 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 pc within the 12 months 1983 after at a value of 2995 . Regardless of being transportable, the issue with the pc was that it appeared to be a suitcase. Nonetheless, there have been large business advantages from the pc because it bought greater than 53,000 models within the first 12 months with a income era 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 grew to become the CEO of HP within the 12 months 1999, had a key function to play within the merger that came about in 2001. She was the primary girl to have taken over as CEO of such an enormous 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 primary intention 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. Regardless of 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 attributable to a failure of each firm and business. HP was pressured to chop down on jobs and in addition be eluded from the privilege of getting Value Water Home Cooper’s to maintain 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 ample for the corporate’s success. Finally, the corporate needed to definitely plan out one thing totally different. So, it was determined that the corporate could be buying Compaq in a inventory transaction whose internet value 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 firms authorized of the merger. Regardless of 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 by way of costs was to have a merger. However the traders and the opposite stakeholders thought that the corporate would by no means be capable of have the loyalty of the Compaq clients, if merchandise are bought 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 nicely. Regardless that these had been speculated 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 stated that the market share of the corporate is sure to extend with the merger and in addition the working unit would double. (Hoopes, 2001)

Benefits of the Merger

Regardless that it appeared 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 determination. 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 manner 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 may imply that the corporate would develop tremendously in quantity. Her dream of competing with the giants within the discipline, IBM would additionally come true. She was of the view that a lot of the redundancy within the two firms would lower as the inner prices on promotion, advertising and marketing and transport would come down with the merger. This may produce the slightest hurt to the gathering of income. She used the concepts of aggressive positioning to justify her plans of the merger. She stated that the merger relies on the ideologies of consolidation and never on diversification. She might additionally defend allegations towards the change within the HP was. She was of the view that the HP has all the time inspired adjustments as it’s about innovating and taking daring steps. She stated that the corporate requires being in keeping with creativity, enchancment and modification. This merger had the potential of offering precisely the identical. (Mergers and Acquisitions, 2010)

Benefits to the Shareholders

The next are the methods wherein the corporate could be advantageous to its shareholders:

Distinctive Alternative: The place of the enterprise is sure to higher with the merger. The rationale for a similar was that now the worth creation could be recent, 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 present rivals. Aside from this, one may entry the capabilities of Compaq immediately therefore decreasing the fee construction in turning into the most important within the business. Lastly, one might additionally see a chance in reinvesting.

Stronger Firm: The profitability is sure to extend within the enterprise, entry and companies sectors in excessive levels. The corporate may see a greater alternative in its analysis and improvement. 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 factors could be 13% within the first monetary 12 months. The corporate might additionally conduct a greater segmentation of the market to forecast its revenues era. This may go to as a lot as 2 and a half billion of annual synergy.

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

Opposition to the Merger

In truth, it was solely CEO Fiorina who was in favor of going with the merger. This can be a sensible utility 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 rationale 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 danger and contain a number of funding as nicely. One other vital motive on this context is that HP’s prime curiosity in Imaging and Printing wouldn’t exist anymore consequently diluting the curiosity of the stockholders. In truth 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 companies would nonetheless stay despite the merger. The worth of the PCS wouldn’t come all the way down to be inexpensive by all. The requisite change in materials for imaging and printing additionally wouldn’t exist. This merger would haven’t 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 will have. So, the standard isn’t assured to enhance. Lastly, the merger wouldn’t equal IBM underneath any situation as thought by Fiorina.

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

Monetary Affect: That is principally as a result of the market reactions are adverse. However, the place of Compaq was completely totally different from HP. As the corporate would have a higher contribution to the income and HP being diluted on the similar time, the issues are sure to develop. This may imply that drawing cash from the fairness market would even be tough for HP. In truth this may not appear to be a really worthwhile merger for Compaq as nicely sooner or later.

The fundamental downside that the house owners of the corporate had with this merger was that it will hamper the core values of HP. They felt that it’s higher to protect wealth somewhat than to danger it with extravagant danger taking. This excessive danger profile of Fiorina was a little bit unacceptable for the house owners of the corporate in mild of its prospects.

So, so far as this merger between HP and Compaq is worried, 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 essentially the most highly effective firms on this planet. There have been a variety of choices like Change Administration, Financial smart Administration, and Organizational Administration which could possibly be thought of to investigate the problem. However this case research could 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 Elements

A CEO will all the time think about 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 nicely. The next are the methods which are associated to this merger between HP and Compaq:

* Having a watch over shareholders’ worth: If one sees this merger from the eyes of Fiorina, it will be sure that the shareholders have rather a lot to achieve from it. The rationale 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 a number of income for the corporate sooner or later.

* Growth of Markets: Two organizations get entangled in mergers as they need 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 process is on head. An intensive scenario scanning is important earlier than placing your toes in Worldwide enviornment. Right here, the competitor for HP was Compaq to a big diploma, so this merger definitely required a number of considering. Organizations merge with the worldwide firms with a purpose 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 must endure the branding created by Compaq. They might be capable of draw all the shoppers of Compaq as nicely.

* Propagated Efficiencies: Any firm by buying one other or by merging makes an try so as to add to its efficiencies by rising 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 workers. 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 gives a aggressive benefit to the businesses. When such firms merge, lots of the intellects come collectively and work in the direction of a standard mission to excel with monetary income to the corporate. Right here, one cannot deny the truth that even the highest brains of Compaq could be collaborating in forming the methods of the corporate sooner or later.

* Administration of dangers: If we notably take an instance of this case, HP and Compaq coming into into this merger can lower the chance stage they’d have diversified enterprise alternatives. The choices for making selection of the provision chain additionally enhance. Now although HP is a pioneer in inkjet orienting, it will 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 varied nations in accordance with the fee viability as the foremost concern.

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

* Essential political laws: When organizations take a leap into different nations, they should think about the totally different laws 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 issue for the corporate. The corporate would solely have to make sure minor laws with the political events of some international locations the place Compaq was flourishing greater than HP.

* Higher Alternatives: When firms merge with one other firm, later they’ll put up on the market as per because the wants of the corporate. This is also performed partially. If HP feels that it will not want a lot of warehouse area it might promote the identical at elevated income. It is dependent upon whether or not the corporate would now be regarded a s a make to inventory or a make to order firm.

* Further merchandise, companies, and services: Companies get copyrights which boosts the extent of commerce. Further Warehouse companies 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 Elements

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

Conversations aren’t carried out: Due to not like cultures, ambitions and danger profiles; lots of the offers are cancelled. As per because the reactions of the house owners of HP, this appears to be extraordinarily seemingly. 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 preserve 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 and so they attempt to separate from one another. A whole lot of pointless advertising and marketing 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 totally different platforms and concepts. Compatibility issues usually happen due to synchronization points. In IT firms comparable to HP and Compaq, many issues can happen as a result of each the businesses have labored on totally different methods prior to now. Now, it may not appear essential for the HP administration to make adjustments as per as these from Compaq. Thus such issues have change into of best concern today.

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 attributable to any motive, they don’t seem to be capable of attain that place, then they develop a abhorrence sense in the 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 a wide range of issues as talked about above, improvement of the mixed firm to perform its mission is delayed. Merged firms set the aim and when the aim isn’t completed attributable to 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)

Threat administration failure: Firms which are concerned in mergers and acquisitions, change into over assured that they will make a revenue out of this determination. This may be seen as with Fiorina. In truth she will combat the entire world for that. When their self-confidence seems into over-confidence then they fail. Ample danger administration strategies must be adopted which might maintain the results if the choice takes a downturn. These danger insurance policies ought to rule fiscal, productions, advertising and marketing, 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 worried. 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 value. The tip customers are additionally prone to enhance. Now, the corporate can re body its aggressive technique the place the best concern could be given to all time rivals IBM. Some great benefits of this merger within the discipline of selling could be seen within the case of shared branding, gross sales and repair. Even the distribution process is prone to be enhanced with Compaq taking part in its half. Now, the corporate can sit up for cross promoting, subsidization and in addition a diminished value.


The foremost benefit on this space is that within the location of uncooked materials. Even the processing type could be similar 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 change into the highest most out there. On this respect, the 2 firms 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 will also be designed in frequent now. There’s a drawback from the attitude of the differentiation that HP had within the discipline 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 a standard analysis and improvement and designing staff.

Shopping for

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


That is an important a part of the methods that will 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 these items 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 will solely arouse an inside competitors. So, the infrastructural advantages could be made by a standard accounting, authorized and human useful resource system. This may be sure 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 incontrovertible fact that with this merger they’d be capable of show rivals to the current goal and people of rivals like IBM as nicely. 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 totally as nicely. It’s because; the merchandise from the 2 firms have carried out exceptionally nicely prior to now. So, essentially 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 shoppers. This has been challenged by the house owners of HP however must be carried by the CEO Fiorina. (Bhattacharya, 2010)