1.

Hewlett-Packard-Compaq : The Merger

Decision
2. Hewlett-Packard : Culture in Changing
Times

Case Analysis

Group

B10

Roll No Name
G14061 Abhash
Mishra
G14065 Ambuj Tripathi
Deepak
G14077 Kumar
G14087 Mayank Sood
G14099 Rajat Mittal

The Announcement
March 19, 2002: Merger was
announced post shareholder
approval by a thin margin
Decision reached after six month
proxy fight
Met with negative reaction by the
market
Potentially the largest merger in
computer industrys history

Management vs. Key

Shareholders
For the merger
HP CEO Fiorina &
Compaq CEO Capellastwo major proponents
The core management
team at HP
Goldman, Saloman
Smith Barney- not very
convinced though
McKinsey and AccenturePaid consultants

Against the merger

Two largest
shareholder trustsLed by Hewlett & the
Packard Foundation
(>16% combined
stake)
Few leading
Investment Banks
Stock Markets
Rating Agencies

market-wide surprise
Proposed Front-back structure to focus on
systems solution Strong reactions from
Executives and Divisional managers
Rejuvenated employee force through lofty
visions
Tried to reinvent the HP Way Rules of the
Garage
Cultural shift from a pragmatic to gamble-forbig-win approach
Compensation structured changed from profitsharing to performance based incentives

CARLY FIORINA IN HP

OVERALL IMPACT
Succeeded in putting her own stamp
Created a top-down structure
Failure in creating front-back organization
Success in creating a consensus for the merger of
Compaq

Synergies ?

Business Segment Combined

($ 79 Billion)
15.4; 20% 19.4; 25%
6.4; 8%
12.5; 16%

24.5; 31%

Busines Market
s
Size
Revenu HP
Market
Segme (In US es (In Contributi Size (In
nt
Bn)
US Bn) on
US Bn)

Pcs

Storage

Services

Servers

Industr
y
Growth
Rate

Printers

25

19.4

100%

39%

31%

7%

Servers

50

12.5

50%

27%

21%

3.10%

26%

37%

3.00%

1%

0%

Storage NA
Printers

Gross
Ran Profit
k
Margin

6.4NA

PCs

153

24.5

40%

21%

Services

666

15.4

55%

2.60%

20% 11.40%

Combined entity would be a market leader in PCs, Storage &

Printers
Services segment will remain small, however, synergies
could be derived
Estimated cost synergies of $2.4 billion in savings annually

BCG Matrix
HP

?
Servers, Laptops and
Desktops

Pocket Computers

Growth
Rate

Pocket Computers

Printers and
Supplies

Market Share

Online and IT Services

Storage,
Services,
Laptops and
Desktops

Market Share

HP and
Compaq

Pocket Computers

Growth
Rate

Growth
Rate

Compa
q

Printers and
Supplies

Market Share

In hindsight
Allayed shareholder concerns through a
better bargain
Hiving off certain parts of the business
Marketed the idea of HPs ability to scale
up the services business
Sorted the problems within respective
distribution channels before the merger
Carly should have synergies out of
moving away from the HP way

The best way to double your money is

to fold it over and keep it in your pocket
Thank You