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Hewlett-Packard Compaq Merger
Business Decision Making
Spring 2005
What We Hoped to Learn
• Basic M&A criteria
• How the AHP process really works
• What happened with HP & Compaq and how can we make it better in the future?
Outline
I. Organizational StructureII. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
Organizational Structure
COORDINATOR
Shannon Caputo
ALTERNATIVES CRITERIA EXPERTS WRITERS
Steve Piskadlo Phil Laspisa Evan Taylor Melissa Shah
Paul Ferraro Kathleen Cardelli -Presentations Jonathan Lai
Shawn Standen Chris Skorski Chris Skorski
Cassie Knox -Expert Choice DOMAIN EXPERTS:
Dr. Stephen Andriole
Professor John Toppel
Outline
I. Organizational Structure
II. IntroductionIII. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
Introduction to HP
• Well-respected systems vendor
• Smaller, but worthy competitor to IBM
• Competes mainly in the hardware business with desktops and servers
• Lacking in the services business
• Undisputed leader with its line of PC printers
Introduction to Compaq
• Compaq sales leveled off with added competition from Dell
• Compaq was best known for its personal computer offerings
• After paying $5.4 billion to finance a merger with Digital Equipment, Compaq eliminated overlap by cutting thousands of jobs worldwide
Carly Fiorina: Mike Capellas:
C.E.O. of Hewlett-Packard C.E.O. of Compaq
Why Merge?
• To compete with IBM and other companies
• The combined services business will have 65,000 services professionals vs. 100,000-plus for IBM
• Reduce Costs
• Bolster stock
Merger Dates
• September 4, 2001 - HP and Compaq announced a definitive merger agreement to create an $87 billion global technology leader.
• Eights months later on May 3, 2002 HP and Compaq officially merge.
What HP Has to Say on Why
• Because in one strategic move, we will become market leaders in servers, in storage and in management software -- the essentials of business infrastructure, where leadership really counts.
• Because we will greatly strengthen our depth and breadth of technology solutions at a time when customers demand integrated, end-to-end solutions.
• Because more inventors and engineers will be focused on solving the toughest technology challenges of our times -- together.
• Because combined we will lead the march toward open standards more effectively than either company could on its own.
• Because for our employees, customers and shareowners, we will be a stronger, more vibrant HP, better conformed to lead and grow under market conditions that will demand unprecedented integration, breadth and flexibility.
• Because in our industry, to stand still is to fall behind.
Outline
I. Organizational Structure
II. Introduction
III. CriteriaIV. Alternatives
V. Hierarchy
VI. Conclusion
Main Criteria
• Ability to Improve Financial Performance
• Ability to Evolve Company
• Ability to Integrate
Ability to Improve Financial Conditions
Ability to Evolve Company
Ability to Integrate
Financial Implications
Model Name: Presentation 2
Treeview
Goal: Should HP and Compaq Merge?
Ability to Improve Financial Conditions (L: .460 G: .460)
Ability to Decrease Costs (L: .643 G: .296)
Ability to Increase Sales (L: .357 G: .164)
PC Technology (L: .422 G: .069)
Server Technology (L: .228 G: .038)
Service Technology (L: .210 G: .034)
Printer Technology (L: .140 G: .023)
Ability to Evolve Company (L: .358 G: .358)
Increase Intellectual Property (L: .600 G: .215)
Improving Brand Value (L: .400 G: .143)
Image (L: .396 G: .057)
Awareness (L: .366 G: .052)
Loyalty (L: .238 G: .034)
Ability to Integrate (L: .182 G: .182)
Human Capital Management (L: .364 G: .066)
Employees/ Culture (L: .667 G: .044)
Channel Partners (L: .333 G: .022)
Company Organizational Structure (L: .251 G: .046)
Resources (L: .222 G: .040)
Technology (L: .337 G: .014)
Marketing (Brand) (L: .268 G: .011)
IT Infrastructure (L: .235 G: .009)
Relationships with Customers & Suppliers (L: .161 G: .007)
Future Planning (L: .163 G: .030)
Strategy (L: .750 G: .022)
Tactics (L: .250 G: .007)
Page 1 of 24/26/2005 12:14:45 PM
Jonathan Lai
Ability to Evolve Company
Model Name: Presentation 2
Treeview
Goal: Should HP and Compaq Merge?
Ability to Improve Financial Conditions (L: .460 G: .460)
Ability to Decrease Costs (L: .643 G: .296)
Ability to Increase Sales (L: .357 G: .164)
PC Technology (L: .422 G: .069)
Server Technology (L: .228 G: .038)
Service Technology (L: .210 G: .034)
Printer Technology (L: .140 G: .023)
Ability to Evolve Company (L: .358 G: .358)
Increase Intellectual Property (L: .600 G: .215)
Improving Brand Value (L: .400 G: .143)
Image (L: .396 G: .057)
Awareness (L: .366 G: .052)
Loyalty (L: .238 G: .034)
Ability to Integrate (L: .182 G: .182)
Human Capital Management (L: .364 G: .066)
Employees/ Culture (L: .667 G: .044)
Channel Partners (L: .333 G: .022)
Company Organizational Structure (L: .251 G: .046)
Resources (L: .222 G: .040)
Technology (L: .337 G: .014)
Marketing (Brand) (L: .268 G: .011)
IT Infrastructure (L: .235 G: .009)
Relationships with Customers & Suppliers (L: .161 G: .007)
Future Planning (L: .163 G: .030)
Strategy (L: .750 G: .022)
Tactics (L: .250 G: .007)
Page 1 of 24/26/2005 12:14:45 PM
Jonathan Lai
Ability to Integrate
Model Name: Presentation 2
Treeview
Goal: Should HP and Compaq Merge?
Ability to Improve Financial Conditions (L: .460 G: .460)
Ability to Decrease Costs (L: .643 G: .296)
Ability to Increase Sales (L: .357 G: .164)
PC Technology (L: .422 G: .069)
Server Technology (L: .228 G: .038)
Service Technology (L: .210 G: .034)
Printer Technology (L: .140 G: .023)
Ability to Evolve Company (L: .358 G: .358)
Increase Intellectual Property (L: .600 G: .215)
Improving Brand Value (L: .400 G: .143)
Image (L: .396 G: .057)
Awareness (L: .366 G: .052)
Loyalty (L: .238 G: .034)
Ability to Integrate (L: .182 G: .182)
Human Capital Management (L: .364 G: .066)
Employees/ Culture (L: .667 G: .044)
Channel Partners (L: .333 G: .022)
Company Organizational Structure (L: .251 G: .046)
Resources (L: .222 G: .040)
Technology (L: .337 G: .014)
Marketing (Brand) (L: .268 G: .011)
IT Infrastructure (L: .235 G: .009)
Relationships with Customers & Suppliers (L: .161 G: .007)
Future Planning (L: .163 G: .030)
Strategy (L: .750 G: .022)
Tactics (L: .250 G: .007)
Page 1 of 24/26/2005 12:14:45 PM
Jonathan Lai
Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. AlternativesV. Hierarchy
VI. Conclusion
Alternatives
• Should they Merge? YES
• Should they Not Merge? NO
Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. HierarchyVI. Conclusion
Expert Choice
Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Analysis & RecommendationsVII. Conclusion
Results
NO 53.4%YES 46.6%
Based on the M&A criteria recommended by our domain experts, HP and Compaq should not have merged
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
No Yes
Sensitivity Analysis
To change the final outcome…
• Ability to Improve Financial Performance must increase from 46.6 to 55.7 or a 19.5% change
• Ability to Evolve Company must decrease from 35.8 to 27.8 or a -22.3% change
• Ability to Integrate does not affect the decision
Overall, the final answer is not very sensitive to any of the criteria
Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Analysis & Recommendations
VII. Conclusion
What Happened?
• They did manage to save $3 billion with the merger, successfully accomplishing their main goal of reducing costs of $2.1 billion
• However, that came at the price of firing 44,000 employees over the last 3 years– Original estimate: 15,000-17,000
Conclusions
Based on the criteria the HP and Compaq
merger should not have gone through.
Problems with integration as well as evolving the company
can be forecasted through the AHP process we have
shown here today.
Mark Hurd: HP’s New C.E.O.
Mark Hurd, a former president at NCR corporation, where he spent 25 years; was appointed C.E.O. and president of Hewlett-Packard on March 29, 2005.
Thank You!
Questions?
