Mergers, Acquisitions and Strategic

Alliances (MASA)
Assignment- 2

Faculty: Prof. Jijo Lukose

Case Analysis : HP Compaq Case (A)

Submitted By:

SANJEEV KUMAR SRIVASTAVA

EPGP-07-071

Company Background

Kathryn Macalester manager of a $5 billion equity fund that owned 16 million shares of
HP had received the joint proxy and prospectus statement recommending shareholder
approval for the merger of HP and Compaq.

The fund which was more interested in long term value proposition than short term
opportunities of the proposed merger

Macalester instructed her research associate to provide the back ground material on the
merger, an assessment value of the strategic value and various valuation analysis in
evaluating the merger.

1 What would a SWOT analysis reveal?

STRENGTH

Weakness

1) Compaq is a dominant player in enterprise

systems
2) HP's dominance in the market segment of
Imaging and printing Group (IPG)
3) HP's commitment to Quality and Integrity
4) HP's name is highly trusted
5)Merger will help to create a trusted
Clientele for a bigger portfolio of business
OPPORTUNITY

1) Negative Financial impact on HP

shareholders
2) Business portfolio strength of HP and
Compaq might weaken
3) Overall market reaction in very negative
4) Job insecurity, especially to senior
management team
5) Revenue risks existing in various
segments of HP and compaq
THREATS

1) Provide Integrated "end -to-end" hardware

,software and business process service to
the Enterprise customers
3) Strengthen the Imaging and printing group
market segment
4) Integration plan will provide immense vale
creation
5) Gaining and retaining technology
customers in the highly fragmented IT
-service sector
2) Helps to reduce overall cost structure

1) Competition from Lexmark and Epson in

the imaging and printing group Segment
2) After merger and IT service business
threat from IBM will remain
3) Difficult to mesh compaq and HP
cultures and values
4) Access PC business of Compaq was in
negative margins and this could erode the
profitability gained from other businesses if
economies of scale did not work out in
their favour
5) Dilution of existing g profit making
business segment

2 Was the merger strategy sound?

Increase market benefits
One stop shop for PC and allied business

 Higher service capability

Advantages due to size
Increase in operational benefits
Complementary Engineering and research capabilities
Reduced manpower, better supply chain, optimization in marketing will
result in savings.
Higher financial benefits
Higher revenues and profits
Possibility of higher investment in strategic areas
Parameter

Result

Types of synergies

Reciprocal synergies and thus acquisitions

Nature of resources

Relative value of soft to hard resources is low and

thus acquisitions

Extent of redundant
resources

Medium to High and thus acquisitions

Degree of market
uncertainty

Low and thus non-equity alliance / Acquisitions

Level of Competition

High and thus acquisition

3 What was the value of the synergies?

4 What was the appropriate valuation range for the merger?

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