Mergers

&
Acquisition
s
Group Members Roll No.
SHWETA DEDHIA C-10
CHHAYA FULSUNGE C-12
ANU PILLAI C-28
PRACHI PITALE C-29
CHAITALI SWAMI C-36
SIMI SAMKUTTY C-41
Hewlett Packard-
Compaq
Merger
 Founders of HP

wl e t t David
Bill H e Packa
rd
 Hewlett Packard
William (Bill) Hewlett and David (Dave) Packard
originated a company in a garage in nearby Palo Alto.

In 1939, Packard and Hewlett established Hewlett-

Packard (HP) in Packard's garage with an initial capital
investment of US$538.
 Timeline 1997 Acquired Verifone

Acquired Texas Instruments’

1992 line of UNIX-based computers.

Electronic mail
1982 system

1981 First personal computer

Major player in computer

1980s
industry

1974 First minicomputer

Established HP
1966 laboratories.
JV with Yokogawa
1963
Electric Works
 Pre merger position of HP-2000
• Carly Fiorina : Chairman (September 22).
• Emerged as 2nd largest computer manufacturer.
• Market leader in Desktop computers, Servers, Peripherals
& services.
• HP marks advances in the area of Internet infrastructure,
introducing the high-end Super dome server line in
September.
 Pre merger position of HP-2001
March: Creates a new business unit, HP Services, reporting
directly to the CEO.
May: Introduces systems and services based on the new Itanium
processor jointly developed by HP and Intel.
Industry stumbled, meeting growth targets became difficult.
September 4: HP and Compaq announce a definitive merger
agreement to create $87 bn global technology leader.
 Other info
Year Listing in Revenues No of
fortune 500 employees
2000 13 $48.8 bn 85500
2001 19 $45.2 bn 88000
 Compaq
Founded by Joseph R. Canion,
Jim Harris & Bill Murto in Feb
1982.

Initial investment $1.5mn.

Manufactured & sold IBM
compatible computers.
Joseph R. Canion, Jim Harris
&
Bill Murto
 Timeline
Work with MSN
1999 companions

1998 Acquired DEC

Entered retail computer

1990s market

1984 Compaq Deskpro

1982 Compaq portable

 Other info
Year Listing in Revenues No of
fortune employees
2000 500
20 $38.5 bn 76100
2001 27 $42.3 bn 82350
3 categories of Products of Compaq
Enterprise computing group

Mainframes Workstations

Servers Internet products &

Networking products
 Commercial PC group

Small & Medium

Business Solutions

Commercial
Desktops

Portables
 Consumer PC group

Desktops Portables

Printers
Mini tower Computers
 Struggling
Companies Make a
Better Merged
Company?????
 Problems In Front of HP
Not
adapting to
technologica
l innovation
rapidly

Build strong
complement • Margins
ary business were going
lines down

• Printing line • IPG business

was facing not gaining
competition its stand
Why Merge ?
Merger would eliminate one player in an oversupplied PC
marketplace.
To compete with IBM and other companies
Reduce Costs.
1990’s IT recessionary phase.
Merger expected to yield savings projected to reach $2.5bn
annually by 2004.
Advantage of more volume of sales.
Development of direct distribution capability.
Strengthen sales force .
Improve customer base.
Strengths of Compaq
Compaq –No 2 in the PC business and stronger on the
commercial side than HP. HP was stronger on the
consumer side. Together they would be No 1 in market
share in 2001 .
Compaq was strong in low-end industry standard (Intel)
servers.
Compaq: best known for its PCs, also had enterprise
businesses that it had built up through earlier
acquisitions of its own.
Challenges in front of HP
 Expectations from Merger
• Create superior customer value.
• Generate cost synergies reaching approximately $2.5 bn
annually.
• Adds up to world-class innovation and quality.
• Larger PC position resulting from the merger likely to
increase risk and dilute shareholders interest.
Contd….

Drive a significantly improved cost structure.

approximate assets of $56.4 billion
annual revenues of $87.4 billion
annual operating earnings of $3.9 billion.

• Operations in more than 160 countries and over 1,45,000

employees.
• Expand the numbers of the company’s service professionals.

• Improves access to the market with Compaq’s direct capability and

low cost structure .
• Work force reduction by around 15,000 employees saving around
$1.5 billion per year .
• Improve HP’s market share .
 Role of Carly fiorina in merger
• Initiative taken for the merger.
• More expectations from the merger.
• Relied on institutional shareholders vote
in favour of deal.
• Inspite of oppositions, went ahead with
the merger.
• Chances to step down as CEO, if merger
fails were high.
 Critics reactions
• “Strategic blunder”.
• “Dumbest deal of the decade” – Michael Dell.
• “One bad PC business merged with another bad PC business
does not make a good PC company”
• “This is not a case of 1 + 1 = 2. More like 1 + 1 = 1.5”.
 Problems during the Deal
Opposition from:
Walter B. Hewlett.
The largest shareholder – The David & Lucile
Packard Foundation(10.4% Stake).
Employees.

Negative reaction of stock market.

Pair lost US$ 13bn.
In contrast, stock prices of their competitors
increased.
Terms &
Conditions
Hp will retain its name.

Fiorina - CEO & chairman in the new company.

Capellas – President in the new company.

 Deal Valuation
Structure Stock-for-Merger

Exchange Ratio 0.6325 of an HP share per Compaq share

Current Value Approx. $25 billion

HP shareholders 64%; Compaq shareholders

Ownership
36%

Accounting Purchase

Expected Closing First half of 2002

 Hp -Compaq merger
• Merge champion (Fiorina).
• Horizontal merger.
• Merger initiated on Sept 2001, completed on May 2002
(8 month process).
• Biggest merger in IT history.
• $25bn all stock purchase.
• 1mn working hours spent on merge.
• HPQ is the new stock symbol for the new HP.
 The Rationalized Product Portfolio
HP branded:
Notebooks, Desktops
Workstations Servers (complete range from high-end to low-end –
Windows, UNIX & Linux-storage)
Storage Printers & printing consumables
Imaging & printing
Scanners, PDAs
IT Solutions
PCs
Compaq branded:
Desktops
Notebooks
 merger a
Success or
a
Failure????
?
 Success in the yr of 2001-02

• Improved market position in every category in which they

compete.
• Became a leader in customer support services.

• In IPG, through a rentless commitment to innovation in product

design, manufacturing and business models.
• Being a technology company, the introduction of the word
‘invent’ in their logo.
• In the last 6 mths of fiscal 2002, introduced more than 100
products & 1400 patents.to their portfolio.
• The yr 2002 with a solid balance sheet with more than $11 bn in
cash & short term investments.
• The acquisition of Compaq’s commercial pc & consumer pc
business allowed improvement in their position in this category.
• Reduced their workforce through combination of layoffs, early
retirements & attrition.
 n s
t io
lu a
V a
 (in $ billions)

Particulars HP Compaq HPQ

Total Revenues 47.0 40.4 87.4

Assets 32.4 23.9 56.4

Operating Earnings 2.1 1.9 4.0

Number of Employees 88,500 70,100 1,58,600

Market Capitalization (as

45,109 20,995 66,104
on 31st August, 2001)
Exchange ratio based on MPS
= MPS of Target
Co
MPS of Acquiring
Exchange Co
Ratio(Based on = $12.35+%18.9
MPS) (Premium)
$23.21
= $14.68 / $ 23.21
10.76
= bn 0.6325
Shares issued to Compaq

Total shares in HPQ 30.23 bn

 EPS Calculations

Particulars HP Compaq

Eps before Merger 0.21 0.33

Eps (HPQ)
(After Merger) 0.31
• Equivalent EPS = 0.33
0.6325
= 0.522

Equivalent
Post Merger Impact on
EPS of
EPS EPS of HP
Compaq

0.522 0.31
Cost & benefit Analysis
(present value -$bn)

• PVHP = 19.47 bn shares x $23.21

= $ 451.89 bn
• PVCompaq = 17.02 bn shares x $12.35

= $210.19 bn
• PVHPQ = 451.89+ 210.19 + 1.5

= $ 664 bn
 Cost for HP ( in $ bn)
• Cost for HP = PVHPQ – PVCompaq

• No. of shares to Compaq Corp. = 10.76 bn

• Total no. of shares after merger = 30.23bn
• = 10.76 = 0.355
30.23
= 0.355 x 664 bn
= 235.72
Cost for HP Ltd. = 235.72 – 210.19
= $ 25.53bn
Benefit for HP & Compaq
Benefit for HP = PVHPQ - (PVHP + PVCompaq)

= $ 664 bn - ($ 451.89 bn + $210.19 bn)

= $ 1.5 bn
Benefit for Compaq = Cost for HP
= $ 25.53bn
 Where Fiorina failed ????
Fiorina ‘s Strategies:-

• Concentrated more on operational integration rather than the

strategic one.

• Tried to change the culture in HP.

• Autocratic management.

• A centralized approach.
Where this failure took
off?????
• Decision to spin off the printing or computer divisions were
thought off.

• PC & other hardware businesses not making much profits

at the end of 2003.

• Stock price of HP’s shares stabilising at a level much below

than before the merger.

• Overtook Dell in PCs and servers, but soon enough again

slipped behind its rival.
FAILU
RE
 Overcomes the failure !!!
Fiorina resigned on Feb 9,2005.

New CEO: Mark Hurd

Where Fiorina failed and where Hurd excels :

Educating HP managers and employees.
Exploiting the possibilities of the merger
Took initiatives to cut down costs, lay off employees
Understanding the market properly and adjusting
HP’s corporate strategy to reality.
Creating a performance oriented culture to pursue
common goals shared throughout the organization.
 Segment wise performance

Segmentwisegrowth(in $millions)
40000
35000
30000
Imaging & printing
25000
20000 Personal systems grp
15000
Enterprise systems
10000 grp
5000 Hp services

0
2000 2001 2002 2003 2004 2005 2006 2007
HPQ’s position after the
merger
Conclusion
 Source
BIBLIOGRAPHY
ICFAI

• WEBLIOGRAPHY
www.wikipedia.com
www.