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HP Compaq Valuation: Assignment 2
HP Compaq Valuation: Assignment 2
HP COMPAQ VALUATION
Assignment 2
Submitted By:
Name
Umesh Tambare
Roll number
EPGP07 089
HP COMPAQ VALUATION
HP SWOT analysis:
Strengths
Weaknesses
Opportunities
1. End-to end solutions strategy for
servers.
2. A merger with Compaq would able
HP as a market leader
Threats
1. Slimming industry margins
2. Strong competition from Dell
Weaknesses
Opportunities
Threats
Page 2
HP COMPAQ VALUATION
Yes, the merger strategy is sound.
Considering SWOT analysis of both HP and Compaq, the merger strategy has
Strategic and financial benefits.
Strategic benefits:
Financial benefits:
by mid-2004.
This will have a value of $5 to $9 per share.
Page 3
HP COMPAQ VALUATION
= $44 / 0.64= $68.75 billion
So merger is producing = $ 68.75 - $ 64.8 =$3.95 billion synergy.
Synergy by DCF method,
Assumptions1. Revenue growth rate = 11%
2. Perpetual growth rate = 3%
3. Discount rate = 15%
All numbers in $ billion
2002
2003
2004
2005
Revenue
92.8
103.008
Revenue
-0.5
3.61
Cost savings
2.5
2.575
Total gain
2.0
6.18
Terminal value
53.05+6.18=59.2
gain/loss
of Synergy
1.52
of Synergy
Page 4
45.01