Merger Of Two Companies

Abhishek Chadha

RA67B1A11

7460070126

Introduction• Dell Computers and IBM posed threat for HP (Hewlett Packard) and

Compaq.

• Decision regarding whether HP should merge with Compaq or not.

• Carleton S Fiorina strongly in favor of merger while Walter B Hewlett, son of one of the founder member was against the merger.

• Certain pros and cons for HP regarding merger:

Pros Cons

i. Compaq’s huge storage business i. New CEO could start fresh strategy

ii. Compaq’s Himilaya server ii. Merger will expose HP as PC popular computers, diluting its printing business

iii. Deal could double the size of iii. Difficult to merge such two large HP’s repair-business. firms

Strengths and Weaknesses

HPStrengths Weaknessesi. Imaging and printing system i. Declining growth of PC marketii. Strong reputation for innovation ii. Weak in server market

that has and quality profit potentialiii. Strong in UNIX servers. iii. Vague direction of working.

CompaqStrengths Weaknessesi. Hardware business i. At time of merger, it had huge.

inventoryii. Strong distribution channel ii. Dell had strong position in

online businessiii. Known for information technology iii. Less capable of taking orders

and customizing computers

Problem Faced• Difficult for Fiorina to make up minds of all board members in favor of

merger.

• Workers anger because of laying off workers and les salaries offered.

• Steep fall in Stock of HP after merger.

• Shares fall from $23.5 billion to $17.70 billion as investors slashed value of deal from $25 billion to $19 billion.

• Sales of HP’s Window server fall from 10.6% to 8.2%

• Share of HP’s PC dropped from 7.8% to 6.9%

• Fiorina promised 15% revenue in 2000. But at the end of the year it was realized that company earnings of $9.22 million was 25% below.

Solutions

SWOT Analysis of CaseStrengths

• HP is a renowned company and is well established in imaging and printing system. So as Compaq that is renowned and well established company in providing PCs.

• HP is known for innovation and quality and Compaq at the same time is also known for its information technology service which provides one-stop solution

• HP’s software and service businesses had great potential; no doubt it was only a small part of the total business. And Compaq on other side had a strong distribution channel.

Weaknesses

• HP has a declining growth of market share whereas Compaq had a strong market share in respect of PC.

• Soon after the merger was announced, the shares of HP started falling down as many shareholders pulled back themselves.

• The profits and market share also faced a steep downfall which affected not only the earning capacity of HP but also the goodwill of the company.

• Moreover, HP faced problem from employees due to merger of such two large firms which had a huge employee stock, managing and expending on them was the biggest problem for HP.

Cont…..Opportunities

• With this merger, HP would find new horizons in PC hardware. As HP is renowned in imaging and printing systems and Compaq in PC hardware. So with this merger HP could make a place in PC hardware as well which might prove beneficial for it.

• Both the companies were well established and with huge market share which gave HP an absolute advantage and a competitive edge as compared to other rival companies.

• Providing PC hardware and printing and imaging system in one system might prove beneficial for HP as a complete package would be provided to the customer and this facility could attract more customers.

Threats

• At the time of merger Compaq had a huge inventory which was supposed to be taken care of by HP and managing this inventory was the biggest threat.

• Compaq’s competitors like Dell who were providing facility like online business for corporate customers poses a serious threat to the company. As because of this facility the liking for Dell was more in customer.

• HP faced a serious threat from Compaq that after the merger, HP could find itself being exposed in the PC hardware business rather than its own printing and imaging business which might face dilution.

Questions/ Answers

Question 1• Pros of Mergers:

– Compaq’s huge storage business – Compaq’s strong Himilaya servers which was popular amongst corporate

customers.– Deal could double the size of Hp’s computer-repair business moving to

roughly $1 billion annually profits– Better advantage of powerful Itanium micro processors developed by Hp and

Intel Corporation– Both firm maintained competitive situation which could result in cost saving

• Cons of Merger:– New CEO would try to figure out fresh strategy for HP.– Acquisition would expose Hp as PC business, diluting earnings of printing

business of HP– Difficult to merge such two large firms– Both firms had different organizational cultures

Question 2

• Personal risk for Fiorina– Her stay at HP was at danger.

– Danger that she might ejected out of the organization

– Had to make board members believe that the merger could be beneficial for HP and had to show relevant reasons behind it.

– If she fails to make all the members agree in merger she might loose her job.

Question 3

Question 4

• Fiorina lost confidence of Workforce because of following reasons:– Management announced laying off 6,000 workers.

– 80,000 employees were paid less salaries.

– Voluntary for getting less salaries was no guarantee of continuing employment.

Question 5

Strong cohesive management could be built up in following ways:

• Employees being the most important resource of the organization should be motivated towards achieving the goals and should be motivated to trust on the organization.

• The biggest threat of HP of loosing or diluting its printing and imaging business ones the merger take place should be taken care of and necessary strategies should be formulated to prevent the same from happening.

• Availability of huge inventory should be used elsewhere in the HP’s system so that they could be efficiently made to usage and optimum output could be draw

Thanks for your

Cooperation