The document summarizes HP's acquisition of Compaq in 2002. It provides background on both companies and reasons for the merger, including achieving economies of scale, strengthening their business and product portfolio, and realizing estimated $2.5 billion in annual cost savings. However, there were also risks such as integration challenges and negative impact on stock prices. Five years after the merger, shareholder returns increased 46% and HP became the leader in various markets like servers and printers. The merger ultimately accomplished the goals of providing critical mass and ensuring long-term success in the transitioning industry.

1. HP – COMPAQ: A Failed Merger?Annadurai Anbarasu

2. Contents Background HP & Compaq

3. Why Merger ? Reasons?

4. Does it make sense? Positives and Negatives of Merger

5. Merger Strategy

6. Challenges & SWOT Analysis

7. Achieved Benefits for Shareholders and Customers

8. Present status – Leadership across portfolio

9. ConclusionBackground – HP30s00s90s80s70s60s50s1939 A new company; HP inventsfirst product1994Planet Partners program launched1999Agilent Spin-off1957Going Public1966 HP enters computer industry;HP Labs opens1st HP Computer1972 Replacing the slide rule—HP invents the pocket calculator1980 Our first PCs1984 A print revolution: HP introduces both the ThinkJet and the LaserJet2002HP-Compaq merger2005Halo Collaboration Studio2008Commitment to cloud computing1959Going global

10. Background – CompaqEntered Server MarketHP Acquired CompaqRod, Jim and Bill Founded COMPAQDEC Acquisition1982199019971984200219982000Introduced Deskpro 286/386 based systemsTandem AcquisitionNo 1 in PC worldwide

11. Why Merger?

12. HP-COMPAQ Merger - PositivesImproved Economics and InnovationCombined company creates economies of scale

13. Direct sales channel

14. More flexible distribution modelComplementary Leadership in Key MarketsIndustry leading product line in entire server category

15. Industry leader in enterprise storage segment and storage area networks

16. Broader portfolio of products and servicesStrengthened Business Provides Critical Mass in Key Growth Market65,000 IT architects in 160 countries accelerates growth

17. Better customer loyalty

18. Leading position in mission-critical services, and multivendor supportFinancial BenefitsEstimated $2.5 billion in annual cost savings by mid-2004

19. Would allow HP to increase investment in the imaging and printing businessHP-COMPAQ Merger - Negatives HP’s Business Portfolio Will Be WorseIncreased exposure in unprofitable PC business

20. PC market was expected to shrinkThe Integration Risk of the Proposed Merger is SubstantialNo significant merger involving computer companies had ever met expectations: ex. Compaq/Digital, Tandem..

21. HP management had no experience with large mergerNegative Financial Impact on HP StockholdersDramatic drop in stock price after proposed merger was announced

22. Wall Street predicted low estimates for future financial performanceHP’s Strategic Position Will Not Materially ImproveNeither company had a profitable PC business model

23. Neither company had successfully transitioned to a direct distribution modelMERGER TRANSACTION SUMMARY

24. HP & COMPAQWhat is strategy?

25. Market reactionUS $ 13 Billion lost in first 2 days (HP & COMPAQ combined)

26. 17% loss in next 2 weeks

27. At the same time the competitors like:

28. DELL went up by 80%

29. Lexmark went up by 60%Pre-merger BCG matrixHighServersPocket computers (PDA)Laptops & DesktopsIndustry Growth RateLowPrinters, Printer suppliesHighOn-line storage and IT servicesPocket computers (PDA)LowStorageServersLaptops & DesktopsLowHighRelative Market share

30. Post-merger BCG matrixServicesSoftwareHighIndustry Growth RateLaptop/NotebooksServersStoragePC’s/DesktopsLowPrinters, Printer suppliesLowHighRelative Market share

31. ChallengesCompetition : As HP and Compaq smooth out their merger, the industry – and their competitors – move on to bigger and better thingsBlending in : The merged company needs to be a “hybrid enterpriseMeshing cultures : INCREASE MORALE & AVOIDING CULTURE CLASHESHP: “deliberative, thorough decision-making”Compaq: “fast decision-making and marketing”CHOOSING PRODUCTSFix the PC business

32. Optimize the server business

33. Enhance the service & consultingConvincing customers: Customers want a clear “migration path,” especial with regards to discontinued offeringsCost: Cut Costs while monitoring revenues (about 3B)Internal IT: Integrating internal IT applications

34. Swot analysis – post mergerThreatsCompetitive EnvironmentEconomic DownturnEmployee MoraleOrganizational Culture conflictAvoidConfrontOpportunitiesSearchExploitInnovationIntegrationOverlapping ManagementCost SavingOverlapping product linesCustomer LoyaltyMarket ShareWeaknessesStrengths

35. Achieved Benefits for customersHP now offers a one-stop shopping experience for global corporate customersBroader product portfolioEase of doing business– Enhanced supply and demand visibilityThe economies of scale have helped HP focus on its legacy of manufacturing innovationDirect selling capabilitiesElimination of non-value-added steps, such as administration, and costs

36. Achieved Benefits for Share holdersIn mid-July 2007, Five years after the merger announcement, – Shareholder returns were up 46 percent. Over the same period:The Standard & Poor's IT index had sunk 9 percent Competitors like:IBM was down 23 percentDell was up only 2 percent

37. LEADERSHIP ACROSS THE PORTFOLIOWorldwide market share data for calendar Q4 2010

38. Conclusion"The merger accomplished what HP and Compaq set out to do in the first place, providing the critical mass and reach needed to ensure a long-term role in an industry undergoing a fundamental transition,“ "This deal enabled the merged company to grow revenue and profits in an increasingly competitive marketplace.“Jean S. Bozman, VP–Research, International Data Corporation. 8th Nov 2006Many predicted HP+Compaq would be 1 + 1 = 1Some predicted HP+Compaq would be 1 + 1 = 2Very few predicted the reality HP+Compaq would be 1 + 1 = 3A SUCCESSFUL MERGER

39. Q & A