case study analysis hp and compaq

Presented By:

Mayank Garg

Astha Laghate

CASE STUDY

COMPAQ + HPA FAILURE OR A SUCCESS ?

Merge champion (Fiorina)

Initiated September 2001

US $25 billion all stock purchase

Biggest merger in IT history

INTRODUCTION

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Corporate Owl: (HP + Compaq), Mayank & Astha

CEO of Hewlett Packard :

Carly Fiorina

CEO of Compaq :

Mike Capellas

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Founded : January 1, 1939

Headquarters : Palo Alto, California, United States of America

Founders ; William Hewlett and David Packard

Originated in Garage

Designed the first Personal Computer

Developing and Manufacturing

a. Computing

b. Data Storage

c. Networking hardware

d. Designing software and delivering services

HEWLETT PACKARD (HP)

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Founded1982

Headquarter Harris

Country, Texas, United States

Founders Jim

Harris & Bill

Murto

Introduced

Desk pro 286/386

based systems

The largest supplier of PC systems during the

1990s

1997Tandem

Acquisition

1998

DEC Acquisition

Overtaken by DELL in 2011

COMPAQ

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Compaq was acquired for US $25 billion by HP in 2002

PRICING

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HP and Compaq suffer similar risks of ‘Standing Still’

Increase competition with major competitors like IBM, DELL

Cut costs by $3 billion annually within 3 years and increase earnings

for shareholders

Merger will enhance business segments as individual and

complimentary each other like supply chain

Face the challenge of a shrinking market

WHY MERGER

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IMPACTS OF MERGER ?

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Improved economics and innovations

Complementary leadership in key markets

Strengthened business provides critical mass in key growth market

Financial Benefits

HP’s Business Portfolio will be worse

The Integration Risk of the Proposed Merger is substantial

Negative Financial Impact on HP stockholders

HP’s Strategic Position will not materially improve

PO

SIT

IVE

NEG

ATIV

E


HP

PRE-MERGER

Experienced revenue growth but share price

still declined

Faced recession in 2001

Pay cuts and layoffs

Stock price continued to fall

Began to consider acquisitions

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• Dell increases pressure in the low-end server market

• IBM, Dell and new entrants erode more market share

• Merger could improve economics and innovation

• Economies of scale

• Strengthen leadership in storage

• Market growth in IT services

• Developing a direct distribution model

• Consulting and outsourcing (low market share)

• Compaq-Printers (low market share)

• Compaq-Server category and overall storage

• HP-High-end storage

• Strong brand recognition

StrengthsWeak-nesses

ThreatsOpportu-

nities


STAKEHOLDERS ANALYSIS

Focus on the primary stakeholders:

Competitors

Public

Customers

Shareholders

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Competitors:

IBM, Sun, Dell

Cost savings by HP

Public and Customers:

Allows HP to reach more people

Adds Compaq’s stable of customers

Tap into Compaq’s positive image

Could potentially entice new

investors


MANAGEMENT’S REASONS FOR MERGER

Improved Economics and Innovation

Complementary Leadership in Key

Markets

Strengthened Business Provides Critical Mass in Key Growth Market

Financial Benefits

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1. HP’s Business Portfolio Will Be Worse

Increased exposure in unprofitable PC business

Imaging and printing segment was expected to grow over 10% per

year

PC market was expected to shrink

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2. The Integration Risk of the Proposed

Merger is Substantial

No significant merger involving computer companies had ever

met expectations

HP management had no experience with a merger this large

Analysts estimated revenue losses could be as high as 15-17%

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3. Negative Financial Impact on HP

Stockholders

Dramatic drop in stock price after proposed merger was announced

Wall Street predicted low estimates for future financial performance

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4. HP’s Strategic Position Will Not

Materially Improve

Neither company had a profitable PC business model

Neither company had successfully transitioned to a direct

distribution model

Merger would not materially improve HP’s market position

in high-profit areas

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SO, WHAT HAPPENED?

51.4% shareholder approval margin

Showed a high level of uncertainty

Supporters felt it was the best option available

for the two firms

Critics against the merger voiced opinions

about the future strategy and the riskiness of

large mergers

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Total Revenue : US $111.454 billion (2014)

Net Income : US $ 5.013 billion (2014)

CEO : Meg Whitman

HP TODAY…

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Source: IDC Worldwide Quarterly Server Tracker, August 26, 2014.

HP server revenue grew for the third time in four quarters.

HP has held the number one server market share position for four quarters.

In the June quarter it generated $3.2 billion in revenue for a 25.4% share and 4% revenue growth(September 2, 2014)

HP MARKET SHARE

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Technology Solutions Group

Enterprise Storage and Servers (ESS)

HP Services (HPS)

HP Software

Personal Systems Group (PSG)

Imaging and Printing Group (IPG)

HP Financial Services (HPFS)

Corporate Investments

HP STRUCTURE NOW

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RECOMMENDATIONS

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Consumer trends

Media & entertainment growth

Enterprise trends

Manufacturing “green” servers, acquiring analytics companies, SaaSoptions

Diversify portfolio

Tap into videoconferencing – potential agreements with Tandberg systems

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www.cata.ca/files/PDF/Resource.../studies/quebec-HPQ-

merger.pdf

https://business.missouri.edu/ifmprogram/reports/2010FS/HP

%20Report.pdf

www.nasdaq.com › Quotes › HPQ › Analyst Stock

Recommendations

https://en.wikipedia.org/wiki/Compaq

BIBLIOGRAPHY

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https://business.missouri.edu/ifmprogram/reports/2010FS/HP Report.pdf


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THANK YOU

Data & Analytics

case study analysis hp and compaq