case study analysis hp and compaq

Presented By:
Mayank Garg
Astha Laghate
CASE STUDY
COMPAQ + HP
A FAILURE OR A SUCCESS ?

 Merge champion (Fiorina)
 Initiated September 2001
 US $25 billion all stock purchase
 Biggest merger in IT history
INTRODUCTION
2
Corporate Owl: (HP + Compaq), Mayank & Astha

CEO of Hewlett Packard :
Carly Fiorina
CEO of Compaq :
Mike Capellas
3

 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)
4

Founded
1982
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
1997
Tandem
Acquisition
1998
DEC
Acquisition
Overtaken
by DELL
in 2011
COMPAQ
5

Compaq was acquired for US $25 billion by HP in 2002
PRICING
6

 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
7

IMPACTS OF MERGER ?
8
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
POSITIVE
NEGATIVE

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
9

10
• 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
Strengths
Weak-
nesses
Threats
Opportu-
nities

STAKEHOLDERS ANALYSIS
Focus on the primary stakeholders:
 Competitors
 Public
 Customers
 Shareholders
11
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
12

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
13

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%
14

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
15

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
16

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
17

 Total Revenue : US $111.454 billion (2014)
 Net Income : US $ 5.013 billion (2014)
 CEO : Meg Whitman
HP TODAY…
18

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
19

 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
20

RECOMMENDATIONS
21

Consumer trends
Media &
entertainment
growth
Enterprise trends
Manufacturing
“green” servers,
acquiring analytics
companies, SaaS
options
Diversify portfolio
Tap into
videoconferencing
– potential
agreements with
Tandberg systems
22

 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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THANK YOU

case study analysis hp and compaq

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