Hp and Compaq Case Study
HP and Compaq are announcing the merger and many people, specially investors are trying to understand whether is a good step for both companies.
There was a controversy between some Hewlett Packer board members and Walter Hewlett, one of the members of the board . Hewlett was opposing to the merge because of the unproductive PC business and the PC market that was anticipated to minimize. The merger risk was significant, the analysts projected a profit loss that could be 15-17%. Stock holders were impacted by the drop in stock price that was pronounced after the proposal of the merger. Also Wall Street expected low estimates for future financial performance. Another reason against the merger was that HP and Compaq had a business model that was not profitable and also the merger would not increase Hps market position in high income areas, specially because of all the economic downturn due to 9/11.
However there was a 51.4% approval margins and the people that supported the merge believed it was the best for both companies. Some believed it will place HP as one of the leaders in technology in key markets. It will also help the server category line and gain more products they can offer the costumer. The merger will improve customer service and loyalty since HP will have 65,000 IT architects in 160 countries and there would be no more competition between each HP and Compaq. HP will turn out to be the second largest global technology provider , it will have more opportunities to create more technology and have more competitive advantage to IBM. Financially HP will also have about $87 billion in revenue and it estimated 2.5 billion in
anural cost savings by 2004. Also there were more estimates of 13% increase in earnings in the first full year after the acquisition is complete.
HP /COMPAQ
Structure: Stock-for-stock merge/ Exchange Ratio: 0.6325 of an HP share per Compaq share
Current Value: Approximately $25 billion
Ownership: HP shareholders 64%; Compaq shareholders 36%
SWOT ANALYSIS OF THE MERGE
STRENGTH