An Analytical Study of Merger:

HP and Compaq

A Project Report Submitted to Utkal University in the Partial

Fulfillment of Degree of Master of Finance & Control.
(2009 – 11)

Submitted by
Dillip Khuntia Diana Pattnaik
Roll No. – 33706V093011 Roll No. – 3370V093021
3370V093021

Under the Guidance of

Prof. Samson Moharana

Director, MFC,
P.G. Department of Commerce
Utkal University

MASTER OF FINANCE & CONTROL

P.G. DEPARTMENT OF COMMERCE
UTKAL UNIVERSITY
BHUBANESWAR
 DECLARATION

WE do hereby declare that the project entitled “An

Analytical Study of Merger: HP and Compaq”

Compaq” is submitted

to Utkal University for the partial fulfillment of degree of

Master of Finance and Control,

Control Utkal University. The

project is an authentic piece of work done by us under the

guidance of Prof.
Prof. Samson Moharana,
Moharana Director, MFC, P.G.

Department of Commerce, Utkal University and it has

neither been neither submitted for award of any other

degree to any other University, Academy, Institution nor

published in any magazine or anywhere else in part or full

to best of our knowledge.

PLACE: BHUBANESWAR (DILLIP KHUNTIA)

KHUNTIA)

DATE:

(DIANA PATTNAIK)
PATTNAIK)
 ACKNOWLEDGEMENT

The satisfaction that accompanies the successful completion of any

task would be incomplete without mentioning people who made it
possible, whose encouragement and consistent guidance crowned my
efforts with success.

We would like to express our heartfelt indebtedness and deep sense

of gratitude to our faculty guide Prof. Samson Moharana, Director,
Master of Finance & Control,
Control, for sharing his knowledge and giving us
guidance and generous co-operation. We are also thankful to our other
faculty members and our friends for their continuous support and
encouragement.

PLACE: BHUBANESWAR (DILLIP KHUNTIA)

KHUNTIA)

DATE:

(DIANA PATTNAIK)
PATTNAIK)
Prof.
Prof. Samson Moharana
Director, MFC
P.G. Department of Commerce
Utkal University

Certificate

This to certify that the project entitled “An Analytical

Study of Merger: HP and Compaq”
Compaq” is a record of bonafide
research work carried out by Dillip Khuntia and Diana
Pattnaik under my supervision and guidance. It embodies
result of their original contribution. The project has reached
the standard of fulfilling the requirements of the regulation
relating to the degree of Master of Finance and Control. No
part of this project has been submitted to any other
institution for the award of any other degree.

I wish them all success in their future endeavours.

PLACE: BHUBANESWAR
DATE: (Prof.
Prof. Samson Moharana)
Moharana)
P.G. Dept. of Commerce
Utkal University.
 EXECUTIVE SUMMERY
The world’s largest corporate Information Technology merger began in September
2001 when HP announced that they would acquire Compaq in an all stock purchase valued at
$25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder and
regulatory approval with the end result being one company. The new HP has annual sales of
approximately $90 billion which is comparable to IBM, and an operating income of almost
$4 billion. The merger was led by Carly Fiorina, the chairwoman and CEO of HP. The
president of the new HP was Michael Capellas who was the former chairman and CEO of the
old HP and who has recently resigned and is now the CEO of World Com.

Overall, many analysts were critical of the merger from the beginning since both
Compaq and HP were struggling companies before the merger. The common question that
has been raised by analysts is: Do two struggling companies make a better merged company?
Some analysts have indicated that the merger is a gamble and that it is difficult to see any
focused logic behind the merge considering that most I.T acquisitions are not successful.
Prior to the merger, Compaq has been unable to grow despite previously buying Digital,
while HP was trying to grow internally, without much success. Both companies were still
adjusting to acquisitions they have made in the past and both were adjusting to new
leadership (Fiorina and Capellas). The merger deal also means that there are many overlaps
in products, technologies, distribution channels, services, facilities and jobs. Employee
morale is a threat to a successful merger as there has been numerous layoffs -15,000
employees. The claimed annual cost savings of about $2.5 billion dollars by the year 2004
amounts to only 3 % of the combined costs of both companies. Gartner Group research has
indicated that the merged company has failed to do a good enough job of presenting the
benefits of an acquisition of this scale to justify the deal’s risk as it is generally known that
technology mergers rarely work. In addition, both companies in the past have struggled to
resolve conflicts between direct and indirect sales channels. The cultural background of both
companies is quite different and integration will take a long time. The culture at HP is based
on consensus; Compaq’s culture on the other hand is based on rapid decision making.

From a positive perspective, most botched tech mergers involved companies that were
trying to buy their way into new businesses they knew little about, this is not the case with
the HP/Compaq merger. Apart from servers and PC’s, they have several areas where their
products overlap. e.g: they are both are involved in making data -storage equipment and both
make hand held computing devices. In addition, both companies also bring different strengths
to the table. Compaq has done a better job in regard to engineering an entire line and HP has
been strong in consumer products. The justification provided by HP senior management
suggests that a merger will enable them to compete with two of their biggest competitors,
IBM and Dell.

In conclusion, it is observed that, the merger initially was opposed by many but with
the strong determination of Fiorina it was finalized and this merger may seems that it is a
wrong move but the results were favorable. Today HP after merging with Compaq which was
one of its the strongest competitor is now leading the industry.
 CONTENT
Declaration i
Acknowledgement ii
Certificate iii
Executive Summery iv
CHAPTER ONE: INTRODUCTION
1.1 Introduction 2
1.2 Objective 2
1.3 Research Methodology 2
1.4 Limitation 3
1.5Chapterisation 3
CHAPTER TWO: MERGER AND ACQUISITION
2.1Merger and Acquisition 5
2.2 Rationale of Merger and Acquisition 5
2.3 Recent Trend in Merger and Acquisition 9
CHAPTER THREE: THE INDUSTRY AND COMPANY PROFILE
3.1 The Industry Profile 14
3.2 The Indian Scenario 14
3.3 The Company Profile 15
CHAPTER FOUR: MERGER OF HP AND COMPAQ
4.1 Rationale of Merger 18
4.2 Target Selection 20
4.3 Target Valuation 22
4.4 Due Diligence 26
CHAPTER FIVE: PROBLEMS AND POST-MERGER INTEGRATION
5.1 Problems during Merger 29
5.2 Post-Merger Integration 30
CHAPTER SIX: EVALUATION OF MERGER
6.1 Does the Merger Make Business Sense 33
6.2 Does the Merger Make Economic Sense 33
6.3 Advantage of Merger 33
6.4 Opposition to the Merger 34
6.5 HP Today 35
6.6 Interpretation 37
6.7 Lesson from the Case 37
6.8 Conclusion 38
BIBLIOGRAPHY 39
Introduction
1.1 INTRODUCTION

From the smallest businesses to the world’s largest corporate titans, the search for
synergy often leads people to seek new markets and new partners. The vast majority of these
efforts are driven by business factors, but according to numerous experts, they succeed or fail
more often because of cultural factors than for any other reason. As a result, the organization
that understands its core values is much more likely to reach the kind of growth and success
that nearly all businesses seek.

Mergers and acquisitions, or “M&A” as they are known in the trade, serve as a prime
example of how intangible aspects such as corporate culture can hold sway over billions of
dollars and thousands of careers. When done well, they have the potential to grow markets,
build on complementary strengths, and eliminate inefficiency. But because they involve
human beings, it is impossible to predict their success on a balance sheet solely through
tangible factors such as infrastructure, head count, or market share. What ultimately matters
in an acquisition is what happens in the hearts and minds of the people who remain with the
new organization and what culture these formerly distinct entities choose to build while
moving forward.

1.2 OBJECTIVE

On the above premise, the following are laid down as the objective of this study

I. To study the rationale of mergers.

II. To evaluate the merger of HP with Compaq.

1.3 RESEARCH METHODOLOGY

The scope this project is confined to the study of the merger of HP with Compaq and
evaluation of its success. This also includes the study of the pre-merger and post-merger
integration and due diligence involved therein. The various problems faced by both the
companies are also taken into preview for this project.

The data used in this project is secondary in nature and consist of various articles
published in various journals and newspapers, the annual reports of both the entities and data
collected from various website in internet. The due diligence of the merger is also taken into
consideration for this project. For valuation purpose some of the data are collected from
various sites of the stock exchanges like the web site of Bombay Stock Exchange Limited
and National Stock Exchange Limited.

1.4 LIMITATION

Some of the limitations that are faced during this study are;

1. The information collected is limited by the authenticity and accuracy of the

information as these are mostly collected from secondary source. The data collected
from the websites are limited and certain information is not available in the website
which is essential for this project.
2. The time of study is very short.

1.5 CHAPTERISATION
The project is about the analysis and evaluation of merger between HP and Compaq. The
chapters describing various facet of this case are;

Chapter one deals with the introduction to the project report, starting with importance,
objectives and research methodology adopted. The limitation to the study is also laid
down.

Chapter two deals with the conceptual study of merger and acquisition. The rationale
of merger and acquisition and the recent trend in mergers and acquisition are laid
down here.

Chapter three deals with the industry profile and company profile of both the
companies HP and Compaq.

The case is discussed in chapter four, where rationale of merger between HP and
Compaq, target selection and valuation is discussed.

The next chapter explains the problems during the merger and post merger
integration.

The ultimate chapter deals with the evaluation of the merger, lesson from the case and
conclusion.
 Merger
&
Acquisition
2.1 MERGER AND ACQUISITION
In the simplest way, Merger can be defined as how a "Marriage" is whereas an Acquisition
can be referred to as an "Adoption" of a child. The phrase mergers and acquisitions
(abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and
management dealing with the buying, selling and combining of different companies that can
aid, finance, or help a growing company in a given industry grow rapidly without having to
create another business entity.
2.2 RATIONALE OF MERGER AND ACQUISITION

The dominant rationale used to explain M&A activity is that acquiring firms seek improved
financial performance. The following motives are considered to improve financial
performance:

2.2.1. SYNERGY

Synergic effect occurs when two substances or factors combine to produce a greater
effect together than the sum of those together operating independently. This theory expects
that there is really "something out there which creates the merged entity to maximize the
shareholders value". To put in other words, synergy is the ability of a merged company to
create more shareholders value than standalone entity.

FINANCIAL SYNERGY

The resultant feature of corporate merger or acquisition on the cost of capital of the
combined or acquiring firm is called as financial synergy. It occurs as a result of the lower
cost of internal financing versus external. A combination of firms with different cash flow
positions and investment scenario may produce the synergic effect and achieve lower cost of
capital. It means when the rate of cash flow of the acquirer firm is greater than that of the
acquired firm, there is tendency to relocate the capital to the acquired firm and the investment
opportunity of the latter increases. If the cash flows of the two entities are not perfectly
correlated, the financial synergy can be expected thus reducing risk. The perceived reduction
of the instability of the cash flow, would lead the suppliers to trust the firm, the combined debt
capacity of the combined firm may be greater than the individual firms.

OPERATING SYNERGY

Economies of scale and economies of scope exist in the industry and before the
merger; the activities of the individual firms are insufficient to exploit these.

Synergy takes the form of revenue enhancement and cost reduction. Speaking of
cutting down costs, this goal is typically achieved through economies of scale, particularly
when it comes to sales and marketing, administrative, operating, and/or research and
development costs. As for revenue synergies, these are achieved through product cross-
selling, higher prices due to less competition, or staking a larger market share.

The merger of ICICI with ICICI Bank and the reverse merger of IDBI Bank with
IDBI served multiple objectives. First, the institutions were strengthened financially. Second,
they helped to avoid the complex processes of restructuring the weaker of the units and to
foster financial stability. Finally, they have opened the possibilities of actively promoting
universal banking.

When two companies in the same industry merge, the combined revenue tends to
decline to the extent, they overlap with one another and some of the customers may also
become alienated. For the merger to benefit the shareholders there must be ample
opportunities for the cost reduction, so that the initial lost value is recovered in due course
through synergy.

2.2.2. GROWTH

Increasing a company's growth is the most common reason behind merger. Growth
can be achieved through investing in capital projects internally or externally by buying out
the assets of outside companies. Empirical studies show that the faster growth rates are
achieved through external growth by means of mergers and acquisitions.

In September 2002, Asian Paints India Ltd, announced its decision to acquire 50.1%
controlling stake in the Singapore-based Berger International Ltd for a consideration of Rs.
57.6 crore. The primary reason for the merger was to enter into the South-East Asian market
that BIL offered. With this acquisition, Asian paints would have a combined capacity of
about 100,000 tones and will have 27 manufacturing facilities worldwide.
2.2.3. MARKET POWER

One of the main motives of a merger is to increase the share of a firm in the market. It
means to increase the size of the firm and also leading to the monopoly power, hence the firm
gets an opportunity to set prices at levels that are not sustainable in a more competitive
market. There are three sources by which market power can be achieved. They are product
differentiation, overcoming entry barriers and improving market share.

One important reason that companies combine is to eliminate competition. Acquiring

a competitor is an excellent way to improve a firm's position in the marketplace. It reduces
competition, and allows the acquiring firm to use the target's resources and expertise.
Unfortunately, combining for this purpose is per se illegal under the antitrust acts as a
predatory practice in restraint of trade. Consequently, whenever a merger is proposed, a
major part of the resulting press release often deals with how this combination of firms is not
anti-competitive, and is done to better serve the consumer. Even if the merger is not for the
stated purpose of eliminating competition, the regulatory agencies may conclude that a
merger is likely to be anti-competitive. For example, Canadian National's attempt to merge
with Burlington Northern Santa Fe was blocked because of concerns that the combination
would prompt a series of mergers and acquisitions whose net effect would be to leave the
continent with only two transcontinental railroads. Although eliminating competition may
result in merger and acquisition activity, it is generally not acceptable to state this as the
purpose of such activity.

Horizontal mergers take place with a motive to attain market power. It is of great
concern to the government because it might lead to concentration or monopoly. Hence
comparison between their efficiencies versus their effects of increased concentration must be
made. Note that horizontal mergers are not the only type of mergers that can yield more
market power. Vertical mergers can enable a company to capture sources of supplies, for
example, that are of paramount importance to its competitors. This is why industry regulators
routinely limit and even disallow horizontal and vertical mergers if there is even a hint of too
much market power concentrating in the hands of only a few companies.

2.2.4. CORPORATE TAX SAVINGS

Although tax savings may not be a primary motivation for a combination, it can
sweeten the deal. When a purchase of either the assets or common stock of a company takes
place, the tender offer less the stock's purchase price represents a gain to the target company's
shareholders. Consequently, the target firm's shareholders will usually experience a taxable
gain. However, the acquiring company may reap tax savings depending on the market value
of the target company's assets when compared to the purchase price. The acquiring company
can write up the target company's assets by the amount that the market value exceeds the net
book value of the target company's assets. This difference can then be charged off to
depreciation with resultant tax savings. This differs from goodwill in that goodwill is never
tax deductible. Depending on the method of corporate combination, further tax savings may
accrue to the owners of the target company.

2.2.5. MARKET/BUSINESS/PRODUCT LINE ISSUES

Often mergers occur simply because one firm is in a market that another wants to
enter. All of the target firm's experience and resources (the employees' expertise, business
relationships, etc.) are available by buying the targeted firm. This is a very common reason
for acquisitions. For example, Monsanto acquired G. D. Searle because Monsanto wanted to
acquire the pharmaceuticals and consumer chemicals (Aspartame) businesses. Sentry
Insurance acquired John Deere Insurance Group to enter the market for insuring implement
dealers, and transportation. CSK Automotive purchased All-Car to have access to the Central
Wisconsin automotive parts market. Similarly, Canadian National purchased Wisconsin
Central to enter the U. S. rail market. Whether the market is a new product, a business line, or
a geographical region, market entry or expansion is a powerful reason for a merger.

Closely related to these issues are product line issues. A firm may wish to expand,
balance, fill out or diversify its product lines. For example, merger and acquisition activities
of Nortek/Peachtree Companies are primarily product line related.

2.2.6. ACQUIRE NEEDED RESOURCES

One firm may simply wish to purchase the resources of another firm or to combine
the resources of the two firms. These resources may be tangible resources such a plant and
equipment, or they may be intangible resources such as trade secrets, patents, copyrights,
leases, etc. , or they may be talents of the target company's employees. One reason given for
the mergers in the petroleum industry is that companies wish to acquire the leases of their
competitors. Both firms and individuals purchase an asset for its utility.
2.2.7. DIVERSIFICATION

Diversification is another frequently cited reason for mergers. Actually, it was THE
reason during the conglomerate merger wave. The idea was to circumvent regulatory
restrictions on horizontal and vertical mergers by going outside a company's industry into
new markets and to achieve growth there.

International mergers provide diversification both geographically and also by product

line. When various economies are not correlated, then the international mergers reduce the
earning risk, inherent in being dependent on a single economy. Thus international mergers
reduce systematic and unsystematic risk.

2.3 RECENT TREND IN MERGERS AND ACQUISITION

2.3.1 GLOBAL MERGER AND ACQUISITION TRENDS FOR 2006 AND 2007

2007 and 2006 were marked by a spate of mergers and acquisitions all over the globe
in both developing and developed countries. The general trend was that, there was a decline
in the number of public sector undertakings along with a hike in the number of private sector
enterprises. This was due to the fact that many public sector organizations worldwide were
either acquired by large private sector enterprises or merged with them.

The explanation to this merger and acquisition trend as observed in 2006 and 2007 lay
in the robust growth recorded by the Private Equity Funds. The other factors propelling this
trend were the emphasis on short term earnings growth and the strict regulatory structure of
public sector enterprises.

This merger and acquisition trend towards increased privatization of public sector
holdings was observed in Europe, Brazil, North America, and China. Europe in that period
hosted a strong investment market, which catered to the public to private sector transition of
companies.

2.3.2 MORE ON PRIVATE EQUITY DRIVEN INTERNATIONAL MERGER AND

ACQUISITION TRENDS

Private equity transactions had been the buzzword for the world economy in 2007 and
2006. The real estate sector and the energy sector witnessed much of this type of activity.
Private equity firms were working overnight for augmenting proprietary deal flows.
 China was a unique case in point. There the powerful trend towards mergers and
acquisitions involving private equity dealings comprised a lot of policy and regional
diversity. A great amount of equity capital flowed into China from US, Japan, Israel, and
Europe as retail sector investments. This was primarily aimed at tapping China's heightened
domestic consumer demand. Focus shifted to the northern and western regions of China as
costs escalated for the commercial hubs alongside the eastern seacoast.

In the US, private equity funds succeeded in raising more than $200 billion in this
period for international merger and acquisition dealings.

As these types of funds usually possessed a time frame of 3 to 5 years for putting the
new invested capital to work, they were expected by the analysts to power heightened merger
and acquisition activities across major global markets for the coming decade.

For Europe the general prediction was that of a high transactional demand related to
private equity analysts observed that certain European markets were characterized by
different financial advantages and tax structures. Western European nations possessed well
oiled legal machinery and conducive investment climates. In particular Britain exhibited a
strong market for public to private investments.

Equity investment in Brazil turned attractive with the program called Novo Mercado.
Brazilian pension funds turned out to be a prime investment force. Their bankruptcy code got
a revision. The elected government was supportive of a free market structure.

In North America domestic dealings in M&A executed by private equity investors of

USA displayed a robust international component. The observed trend was that a majority of
the funds wanted to secure offshore partners for distribution, contract manufacturing or joint
ventures.

This kind of cross-border transactions entailed a careful planning for tax obligations
arising out of fund repatriation.

2.3.3 MORE ON MERGER AND ACQUISITION TRENDS

Global leveraged buyouts figures for 2006 were above US$ 800 billion. This was
more than twice the comparable figure for 2005. It constituted around 20 % of US
international mergers and acquisitions. However, even then it was not a significant
component of twhe world equity and debt market.
 In 2006 North America saw vigorous leveraged buyout activities, which amounted to
half of the world activity in that field. Europe witnessed a fairly heightened activity in the
arena of leveraged buyouts; while Asia had a relatively slow increase. France, Netherlands,
and Germany were the biggest European buyout markets in 2006.

Table – 2.1

Mergers & Acquisition Deals in India for first financial quarter 2010

Sector No. of Deals Value in USD million Share in per cent

Telecom 3 22732.26 67.19

Pharmaceutical 4 3958.29 11.02

BFSI 6 2651.54 7.84

Metal and Mining 4 1483.15 4.38

Energy 4 1320 3.90

Other sectors 39 1919.00 5.67

III. Evolution of total M&A deals by

target region (2000-2006)
16000 2000
EU (Deals) US (Deals) Asia (Deals)
1800
14000 EU (Value) US (Value) Asia (Value)

1600
12000
1400

10000
1200
Aggregate
Number
8000 1000 value of deals
of deals
(€ billion)
800
6000

600
4000
400

2000
200

0 0
2000 2001 2002 2003 2004 2005 2006

14 March 2008 WORKS workshop, Leuven 9

 III. Worldwide M&A
45000 4500

40000 4000

35000 3500

30000 3000

Value in billion euros

Number of deals

25000 2500

20000 2000

15000 1500

10000 1000

5000 500

0 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Number of deals Value in bn euro

14 March 2008 WORKS workshop, Leuven 8

Industry
Profile
&
Company
Profile
3.1 THE INDUSTRY PROFILE
Information technology (IT) is a broad field that covers all aspects of managing and
processing information. IT professionals design, develop, support, and manage computer
software, hardware, and networks. From the exuberant growth of its early years to the
uncertainty of recent times, the IT industry has stabilized—with job growth rates now rising
steadily—and continues to change in order to meet the needs of the business world. While the
wild optimism that surrounded the IT industry a few years back has been deflated, the IT
industry is adapting to a changing market. New developments such as creating infrastructure
for mobile technologies will continue to ensure the vitality and viability of the industry. And
as the industry responds to new business needs, it will continue to evolve into a mature
profession, a profession versatile enough to adapt to new demands and stable enough to
support new innovations and developments.

IT includes IT and Telecommunication; IT Industries includes, IT Hardware and

Software Industries; IT Software Industries include IT Software, IT Services and IT enabled
services, IT infrastructure means the physical Infrastructure build by a firm or a builder and
sold to an IT Industries for its own use or the Infrastructure build by an IT Industry for its
own use.

3.2 THE INDIA SCENARIO

In information technology (IT), India has built up valuable brand equity in the global
markets. In IT-enabled services (ITES), India has emerged as the most preferred destination
for business process outsourcing (BPO), a key driver of growth for the software industry and
the services sector.

The IT industry is passing through a phase of mergers and consolidations in India

largely in line with global trends. Companies are focusing on organic as well as inorganic
growth. Indian IT companies are prowling for potential acquisitions both in the domestic as
well as foreign markets. 3 Indian software companies – TCS, Infosys, Wipro have all crossed
the billion dollar mark. Competition in the Indian IT arena is increasing leaps and bounds
with global giants like IBM, Accenture, CSC consolidating their positions and the companies
like Cognizant, Kanbay, Patni doing brisk business.
3.3 THE COMPANY PROFILE

3.3.1 HEWLETT-PACKARD
PACKARD

Bill Hewlett and Dave Packard graduated in electrical engineering from Stanford
University in 1935. The company originated in a garage in nearby Palo Alto during a
fellowship they had with a past professor, Frederick Terman at Stanford during the Great
Hewlett-Packard.[15] In
Depression.. Terman was considered a mentor to them in forming Hewlett
1939, Packard and Hewlett established Hewlett-Packard
Hewlett Packard (HP) in Packard's garage with an
initial capital investment of US$538.[16] Hewlett and Packard tossed a coin to decide whether
w
the company they founded would be called Hewlett-Packard
Hewlett Hewlett[17] Packard
or Packard-Hewlett
won the coin toss but named their electronics manufacturing enterprise the "Hewlett-Packard
"Hewlett
Company". HP incorporated on August 18, 1947, and went public on November 6, 1957.

The company has been prospering ever since as its profits grew from five and half
million dollars in 1951 to about 3 billion dollars in 1981. The pace of growth knew no bounds
as HP's net revenue went up to 42 billion dollars in 1997. Starting with manufacturing audio
oscillators, the company made its first computer in the year 1966 and it was by 1972 that it
introduced the concept of personal computing by a calculator
calculator first which was further
advanced into a personal computer in the year 1980. The company is also known for the
laser-printer
printer which it introduced in the year 1985.

SWOT ANALYSIS OF HP

Strengths:

• Server category and overall storage

Compaq-Server

• HP-High-end storage
 • Strong brand recognition

Weaknesses:

• Developing a direct distribution model

• Consulting and outsourcing (low market share)

• Compaq-Printers (low market share)

Opportunities:

• Merger could improve economics and innovation

• Economies of scale

• Strengthen leadership in storage

• Market growth in IT services

Threats:

• Dell increases pressure in the low-end server market

• IBM, Dell and new entrants erode more market share

3.3.2 COMPAQ

The company is better known as Compaq Computer Corporation. Compaq was founded in
February 1982 by Rod Canion, Jim Harris and Bill Murto, three senior managers from
semiconductor manufacturer Texas Instruments. Each invested $1,000 to form the company.
Their first venture capital came from Ben Rosen and Sevin Rosen Funds. The original
Compaq PC was first sketched out on a placemat by the founders while dining in a local
Houston restaurant, House of Pies. It had the charm of being called the largest manufacturers
of personal computing devices worldwide. The company was formed by two senior managers
at Texas Instruments. The name of the company had come from-"Compatibility and Quality".
The company introduced its first computer in the year 1983 after at a price of 2995 dollars. In
spite of being portable, the problem with the computer was that it seemed to be a suitcase.
Nevertheless, there were huge commercial benefits from the computer as it sold more than
53,000 units in the first year with a revenue generation of 111 million dollars.

3.4 HP AND COMPAQ

On September 3, 2001, HP announced that an agreement had been reached with

Compaq to merge the two companies. In May, 2002, after passing a shareholder vote, HP
officially merged with Compaq. Prior to this, plans had been in place to consolidate the
companies' product teams and product lines.

The merger occurred after a proxy fight with Bill Hewlett's son Walter, who objected
to the merger. Compaq itself had bought Tandem Computers in 1997 (which had been started
by ex-HP employees), and Digital Equipment Corporation in 1998. Following this strategy,
HP became a major player in desktops, laptops, and servers for many different markets. After
the merger with Compaq, the new ticker symbol became "HPQ", a combination of the two
previous symbols, "HWP" and "CPQ", to show the significance of the alliance and also key
letters from the two companies Hewlett-Packard and Compaq (the latter company being
famous for its "Q" logo on all of its products.)
 Merger Of
Hewlett-
Hewlett-Packard
With
Compaq
4.1 RATIONALE OF MERGER

Carly Fiorina, who became the CEO of HP in the year 1999, had a key role to play in
the merger that took place in 2001. She was the first woman to have taken over as CEO of
such a big company and the first outsider too. Her basic aim was to modernize the culture of
operation of HP. She laid great emphasis on the profitable sides of the business. This shows
that she was very extravagant in her approach as a CEO. In spite of the growth in the market
value of HP's share from 54.43 to 74.48 dollars, the company was still inefficient. This was
because it could not meet the targets due to a failure of both company and industry. HP was
forced to cut down on jobs and also be eluded from the privilege of having Price Water
House Cooper's to take care of its audit. So, even the job of Fiorina was under threat. This
meant that improvement in the internal strategies of the company was not going to be
sufficient for the company's success. Ultimately, the company had to certainly plan out
something different. So, it was decided that the company would be acquiring Compaq in a
stock transaction whose net worth was 25 billion dollars.

Apart from these reasons there are other driving factors that contributed to this merger are
described below;

For HP, the merger can be considered to be an occasion to take a competitive

advantage over its rivals like IBM as in this case and also be of some interest to the
shareholders as well.

If one sees this merger from the eyes of Fiorina, it would be certain that the
shareholders have a lot to gain from it. The reason for the same is the increment in the
control of the market. So, even of the conditions were not suitable from the financial
perspective, this truth would certainly make a lot of profits for the company in the
future.

Two organizations get involved in mergers as they want to expand their market both
on the domestic and the international level. Integration with a domestic company
doesn't need much effort but when a company merges internationally as in this case, a
challenging task is on head. A thorough situation scanning is significant before
putting your feet in International arena. Here, the competitor for HP was Compaq to a
large degree, so this merger certainly required a lot of thinking. Organizations merge
with the international companies in order to set up their brands first and let people
 know about what they are capable of and also what they eye in the future. This is the
reason that after this merger the products of Compaq would also have the logo of HP.
Once the market is well-known, then HP would not have to suffer the branding
created by Compaq. They would be able to draw all the customers of Compaq as well.

Any company by acquiring another or by merging makes an attempt to add to its

efficiencies by increasing the operations and also having control over it to the
maximum extent. We can see that HP would now have an increased set of employees.
The only factor is that they would have to be controlled properly as they are of
different organizational cultures.

An improvised organization of monetary resources, intellectual capital and raw

materials offers a competitive advantage to the companies. When such companies
merge, many of the intellects come together and work towards a common mission to
excel with financial profits to the company. Here, one can't deny the fact that even the
top brains of Compaq would be taking part in forming the strategies of the company
in the future.

When companies merge with another company, later they can put up for sale as per as
the needs of the company. This could also be done partially. If HP feels that it would
not need much of warehouse space it can sell the same at increased profits. It depends
on whether the company would now be regarded a s a make to stock or a make to
order company.

Services get copyrights which enhances the level of trade. Additional Warehouse
services and distribution channels offer business values. Here HP can use all such
values integrated with Compaq so as to increase its prospects.

4.2 TARGET SELECTION

4.2.1 UNIQUE OPPORTUNITY

The position of the enterprise is bound to better with the merger. The reason for the
same was that now the value creation would be fresh, leadership qualities would improve,
capabilities would improve and so would the sales and also the company's strategic
differentiation would be better than the existing competitors. Other than this, one can also
access the capabilities of Compaq directly hence reducing the cost structure in becoming the
largest in the industry. Finally, one could also see an opportunity in reinvesting.

4.2.2 STRONGER COMPANY

The profitability is bound to increase in the enterprise, access and services sectors in
high degrees. The company can also see a better opportunity in its research and development.
The financial conditions of the company with respect to its EBIT and net cash are also on the
incremental side.

4.2.3 COMPELLING ECONOMICS

The expected accumulation in IIP gains would be 13% in the first financial year. The
company could also conduct a better segmentation of the market to forecast its revenues
generation. This would go to as much as 2 and a half billion dollars of annual synergy.

4.2.4 ABILITY TO EXECUTE

As there would be integration in the planning procedures of the company, the chances
of value creation would also be huge. Along with that the experience of leading a diversified
employee structure would also be there.

Expectations From Merger Of HP And Compaq

The merger of HP with Compaq will create superior customer value by expanding its
product range and together HP and Compaq can focus on R & D in a greater extend.

The second best benefit that the merger will emerge is cost benefit by generating cost
synergies reaching approximately $2.5 bn annually.

Drive a significantly improved cost structure, approximate assets of $56.4 billion,
annual revenues of $87.4 billion and annual operating earnings of $3.9 billion.

Adds up to world-class innovation and quality through the merger of two of the
leading IT companies of the world.

Larger PC position resulting from the merger likely to increase risk and dilute
shareholders interest.

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.

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.

The above are some of the driving forces that resulted into the merger of HP and
Compaq into HPQ. If the total case is being analyzed, it can be seen that the motives that
made these companies to agree for merger is for same product line and shareholder value
addition. Apart from these reasons value creation and improved cost structure is also motives
behind this merger.

4.3 TARGET VALUATION

Figure – 4.1
DEAL VALUATION

Structure Stock-for-merger

Exchange ratio 0.6325 ofan HP share per

Compac share
Current value Approx $ 25 bn
Ownership HP shareholders 64%;
Compac 36%
Accounting Purchase
Expected closing First half of 2002
 Figure – 4.2

FINANCIAL HILIGHTS

Particular HP COMPAC HPQ

Total revenues 47.0 40.4 87.4
Assets 32.4 23.9 56.4
Operating 2.1 1.9 4.0
earnings
Number of 88,500 70,100 1,58,600
employees
Market 45,109 20,995 66,104
capitalization(as
on 31st
august,2001)

Figure – 4.3

EXCHANGE RATIO BASED ON MPS

Exchange Ratio (based on = MPS OF TARGET CO+

MPS) MPS OF ACQUIRING CO
$ 12.35+ %18.9
(PREMIUM) =$ 23.21
=$ 14.68/$23.21
SHARES ISSUED TO 10.76bn
COMPAC
TOTAL SHARES IN HPQ 30.23bn
 Figure – 4.4
EPS CALCULATIONS

Particulars HP COMPAC
EPS before 0.21 0.33
merger
EPS of HPQ after 0.31
merger

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

If we look at the deal valuation, it can be observed that the exchange ratio of HP share
with Compaq is 0.6325 and the current value is about $25 bn, the ownership is distributed in
64:36 ratios. The total revenue of $47 bn is earned by HP, while Compaq has annual revenue
of $ 40.4 bn and combined firm HPQ has annual revenue of $ 87.4 bn. The market
capitalization of both the companies is 45,109 and 20,995 for HP and Compaq respectively,
whereas the market capitalization of HPQ is about 66,104. The EPS of HP and Compaq
before merger is .21 and .33 and the EPS of HPQ is about .31.

From the cost and benefit analysis, it is observed that the present value of HP is about
$495.89 bn. Similarly the present value of Compaq is about $210.19 bn. But when they
merged the present value of merged company HPQ is about $664 bn, which is more than the
cumulative present value of both the companies.

The analysis of the valuation shows

8% to 46% over exchange ratios implied by average prices for the 10 trading days
prior to announcement, with a median premium of 23%.

7% to 58% over exchange ratios implied by average prices for the 20 trading days
prior to announcement, with a median premium of 23%.

12% to 29% over exchange ratios implied by average prices for the 1 trading days
prior to announcement with a median premium of 15%.

Both the companies seem to have pegged their valuation based on the growth of IT
industry. After all, there is no other industry that has a growth prospective that IT industry
has it is obvious that the companies value them at a higher rate. The revolution in IT industry
and increased use of IT and IT-related products can be considered as a factor of such
valuation. Secondly, the growth of banking and financial sector and increased use of IT by
them also contribute to the valuation.

4.4 DUE DILIGENCE

Due diligence is one of the methods used to study, investigate, and evaluate business
opportunities. Although the term was popularized in the 1980s, the activity has been a part of
business transactions for years. Due diligence is typically done before major decisions are
made or shortly after they are announced to the public. The scope of due diligence determines
the length and cost of the procedure and typically varies with factors such as the size and
complexity of the organization or businesses that are under scrutiny; the size of the deal; the
relative risk to all parties involved; and time and budget constraints.

What is due, or sufficient, diligence varies with every situation. At a minimum, due
diligence typically analyzes the following:

o Historical activity (prior five years’ worth, if available).

o Ownership and structure of entity.
o Management team.
o Products and services, including market share by category.
o Assets and liabilities.
o Information systems and technology.
o Organizational culture

Due diligence is universally conducted as part of the analysis for mergers and
acquisitions, increasingly, it is used when evaluating all types of business combinations or
affiliation agreements

Fiorina’s ability to convince internal skeptics, such as her CFO, was helped by the
thoroughness of her approach. Dan Plunkett, an experienced external consultant and longtime
personal advisor of Fiorina observed: “Carly is very systematic. She is a very planning leader,
both on a large scale and on the tactical level. We got involved directly with the due diligence
of understanding the two cultures, the two sets of leadership, how they would fit together and
what would be needed to make these teams work effectively as one team.” Plunkett said:

HP saw itself, and the evidence supported that view, as a culture of consideration,
thoughtfulness, and planning—a more careful culture. Compaq saw itself more as a culture of
“ready, shoot, aim.” They were much quicker to act. They debated less, discussed less, and
considered less before they took action. And HP saw itself as quite different from that.

There were some other quite interesting findings. For instance, there was a perception
that Compaq held their people more accountable than HP. But as we looked into the two
cultures, the Compaq people admitted that they certainly had room to grow in that area, and
that HP was not quite as bad as people perceived it as far as delivery and sense of
accountability, responsibility.

It can seen that was largely due to the progress that HP had made in the couple of
years before the Compaq acquisition came about. It was a culture that had become much
more accountability-oriented, much more aggressive, much more willing to take risks, at least
among the leadership of the organization, and much more in touch with the customer and the
competition. Compaq was perceived as much more customer and competitor focused than
HP. In fact, the HP that bought Compaq no longer fit the old perception—it was much closer
to Compaq in that regard.

Plunkett also observed that top management used the challenges the acquisition faced,
including the proxy fight, as a kind of rallying call. He said that because they had an “outside
enemy to fight” the two teams started very early on to work together as one team.
 Problems
&
Post – Merger
Integration
5.1 PROBLEMS DURING MERGER

There are a number of mergers and acquisitions that fail before they actually start to
function. In the critical phase of implementation itself, the companies come to know that it
would not be beneficial if they continue as a merger. This can occur in this merger between
HP and Compaq due to the following reasons. Some of the problems of this merger are, the
owners oppose the deal, merger of two companies which are not doing well at that particular
time. These problems are explained below in detail;

5.1.2 CONVERSATIONS ARE NOT IMPLEMENTED

Because of unlike cultures, ambitions and risk profiles; many of the deals are
cancelled. As per as the reactions of the owners of HP, this seems to be extremely likely. So,
motivation amongst the employees is an extremely important consideration in this case. This
requires an extra effort by the CEO, Fiorina. This could also help her maintain her position in
the company.

5.1.2 LEGAL CONTEMPLATIONS

Anti-competitive deals are often limited by the rules presiding over the competition
rules in a country. This leads to out of order functioning of one company and they try to
separate from each other. A lot of unnecessary marketing failures get attached to these
conditions. If this happens in this case, then all that money which went in publicizing the
venture would go to be a waste. Moreover, even more would be required to re-promote as a
single entity. Even the packaging where the entire inventory from Compaq had the logo of
HP would have to be re-done, thus hampering the finance even further.

5.1.3 COMPATIBILITY PROBLEMS

Every company runs on different platforms and ideas. Compatibility problems often
occur because of synchronization issues. In IT companies such as HP and Compaq, many
problems can take place because both the companies have worked on different strategies in
the past. Now, it might not seem necessary for the HP management to make changes as per as
those from Compaq. Thus such problems have become of greatest concern these days.
5.1.4 FISCAL CATASTROPHES

Both the companies after signing an agreement hope to have some return on the
money they have put in to make this merger happen and also desire profitability and
turnovers. If due to any reason, they are not able to attain that position, then they develop a
abhorrence sense towards each other and also start charging each other for the failure.

5.1.5 HUMAN RESOURCE DIFFERENCES

Problems as a result of cultural dissimilarities, hospitality and hostility issues, and

also other behavior related issues can take apart the origin of the merger.

5.1.6 LACK OF DETERMINATION

When organizations involve, they have plans in their minds, they have a vision set;
but because of a variety of problems as mentioned above, development of the combined
company to accomplish its mission is delayed. Merged companies set the goal and when the
goal is not accomplished due to some faults of any of the two; then both of them develop a
certain degree of hatred for each other. Also clashes can occur because of bias reactions.

5.1.7 RISK MANAGEMENT FAILURE

Companies that are involved in mergers and acquisitions, become over confident that
they are going to make a profit out of this decision. This can be seen as with Fiorina. In fact
she can fight the whole world for that. When their self-confidence turns out into over-
confidence then they fail. Adequate risk management methods should be adopted which
would take care of the effects if the decision takes a downturn. These risk policies should rule
fiscal, productions, marketing, manufacturing, and inventory and HR risks associated with
the merger.

5.2 POST MERGER INTEGRATION

The new HP developed a white paper giving complete details of its post-merger
product strategy. The HP and Compaq brand names were retained for desktop PCs and
notebooks for both consumers and commercial segments. The merged entity supported
Compaq's brand name for its servers while it continued with HP for workstations. The
electronic shopping sites of both the companies were also integrated.
 To make the merger work, the new HP initially focused on two areas - avoiding
culture clashes internally and reducing any problems to the customers. The company devoted
a significant amount of time in planning to minimize any instance of culture clashes that
usually happened in such mega-mergers. The task of ensuring this was given to Susan
Bowick, HP's Senior VP of HR. She put all employees through a training workshop named as
'Fast Start,' designed to explain the merged entity's new organizational structure and allow
employees overcome concerns about their new co-workers. HP also made efforts to
strengthen its image as a single unified company.
 Evaluation of
Merger Between
HP and Compaq
6.1 DOES THE MERGER MAKE BUSINESS SENSE

Soon after the HP-Compaq merger deal was approved by the HP's board and its
shareholders in March 2002, industry analysts termed the deal as a strategic blunder. Critics
ridiculed Fiorina by saying that one bad PC business merged with another bad PC business
does not make a good PC company.

Many analysts felt that the synergies HP foresaw would not materialize easily. They
said that the merged order to beat Dell in PCs, while constantly investing money in research
and development and consulting to compete with IBM and Sun Microsystems.

In the high-end server markets, IBM and Sun Microsystems were constantly
introducing new products. Since more than half of the new HP's sales came from low-margin
PCs, analysts expressed concerns that it would not have enough cash to invest in R&D in
order to compete in the high-end market.

6.2 DOES THE MERGER MAKE ECONOMIC SENSE

A few HP divisions that were big revenue earners were not able to contribute
correspondingly to profits. An analysis of the company's business segment revenues in the
fiscal 2004 revealed that the Enterprise Storage & Servers and the Personal Systems
divisions, the erstwhile Compaq strongholds, brought in revenues of US$ 39.774 billion,
comprising approximately 50% of HP's total revenues.

However, the operating profits from both these divisions combined were US$ 383
million, less than 1% of the divisions' revenues. Moreover, the total contribution of these two
divisions in the overall operating profits of HP of US$ 5.473 billion was just 7%. Another
major business of the erstwhile Compaq, HP services which generated revenues of US$
13.778 billion, witnessed a fall in operating profits from US$ 1.362 billion in fiscal 2003 to
US$ 1.263 billion in fiscal 2004. HP's own imaging and printing was the only business
division that posted respectable operating profit of $3.847 billion.

6.3 ADVANTAGES OF THE MERGER

Even though it seemed to be advantageous to very few people in the beginning, it was
the strong determination of Fiorina (the CEO of HP) that she was able to stand by her
decision. Wall Street and all her investors had gone against the company lampooning her
ideas with the saying that she has made 1+1=1.5 by her extravagant ways of expansion.
Fiorina had put it this way that after the company's merger, not only would it have a larger
share in the market but also the units of production would double. This would mean that the
company would grow tremendously in volume. Her dream of competing with the giants in
the field, IBM would also come true. She was of the view that much of the redundancy in the
two companies would decrease as the internal costs on promotion, marketing and shipping
would come down with the merger. She said that the company requires being consistent with
creativity, improvement and modification. This merger had the capability of providing
exactly the same.

6.4 OPPOSITION TO THE MERGER

In fact, it was only CEO Fiorina who was in favor of going with the merger. This is a
practical application of Agency problem that arises because of change in financial strategies
of the company owners and the management.

The position of the company as a larger supplier of PCs would certainly increase the
amount of risk and involve a lot of investment as well. Another important reason in this
context is that HP's prime interest in Imaging and Printing would not exist anymore as a
result diluting the interest of the stockholders. In fact the company owners also feel that there
would be a lower margin and ROI.

The market position in high-end servers and services would still remain in spite of the
merger. The price of the PCS would not come down to be affordable by all. The requisite
change in material for imaging and printing also would not exist. This merger would have no
effect on the low end servers as Dell would be there in the lead and high-end servers either
where IBM and Sun would have the lead. The company would also be eluded from the
advantages of outsourcing because of the surplus labor it would have. So, the quality is not
guaranteed to improve. Finally, the merger would not equal IBM under any condition as
thought by Fiorina.

6.4.1 HUGE INTEGRATED RISKS

There have been no examples of success with such huge mergers. Generally when the
market doesn't support such mergers, don't do well as is the case here. When HP could not
manage its organization properly, integration would only add on to the difficulties. It would
be even more difficult under the conditions because of the existing competitions between HP
and Compaq. Being prone to such risky conditions, the company would also have to vary its
costs causing greater trouble for the owner. The biggest factor of all is that to integrate the
culture existing in the two companies would be a very difficult job.

6.4.2 FINANCIAL IMPACT

This is mostly because the market reactions are negative. On the other hand, the
position of Compaq was totally different from HP. As the company would have a greater
contribution to the revenue and HP being diluted at the same time, the problems are bound to
develop. This would mean that drawing money from the equity market would also be difficult
for HP. In fact this might not seem to be a very profitable merger for Compaq as well in the
future.

The basic problem that the owners of the company had with this merger was that it
would hamper the core values of HP. They felt that it is better to preserve wealth rather than
to risk it with extravagant risk taking. This high risk profile of Fiorina was a little
unacceptable for the owners of the company in light of its prospects.

So, as far as this merger between HP and Compaq is concerned, on side there was this
strong determination of the CEO, Fiorina and on the other side was the strong opposition
from the company owners. This opposition continued from the market including all the
investors of the company. So, this practical Agency problem was very famous considering
the fact that it contained two of the most powerful hardware companies in the world. There
were a number of options like Change Management, Economic wise Management, and
Organizational Management which could be considered to analyze the issue. But this case
study can be solved best by a strategy wise analysis.

6.5 HP TODAY

• Total Revenue: $118,364 million (2008)

• 13.5% growth over prior year
• Net Income: $8,329 million (2008)
• 14.7% growth over prior year
HP Market Share

• Leading global PC market for shipments

• 2006 – Took market leadership from Dell

• 18% HP, 14% Dell, 11% Acer, 7% Lenovo (2008)

• Leading global server market

• 30% market share in 2008

• Leading blade servers segment

• 47% HP, 26% IBM (2008)

• Leading global printers market

• 40% market share in 2008

• Competitors: Xerox, Canon

• Storage market

• EMC, HP (2008)

• IT services

• 2nd largest player (EDS acquisition in 2008)

• Competitors: Accenture, IBM

• Branding

• 12 in Top 100 best global brands (Interbrand, 2008)

6.6 INTEPRETATION

From the above, it can be observed

The key advantages of this merger are the increase in capacity and greater market
accessibility. Along with this the merged company HPQ is leading the market in
competition with companies like IBM and DELL.

This merger was opposed by the owner of the company, but supported by the CEO,
which gave rise to Agency problem.

The over confidence of Fiorina (the CEO of HP) can be considered as a problem for
successful merger and post-merger integration.

The amount spent in this merger could also be expended in Research and
Development, which on the other hand can give a good result to HP.

But, if the present position of HP is analyzed, it can be said that the merger has helped
the company to grow. The growth in total revenue and net income of HP is about
13.5% and 14.7%, which indicates the good performance of the company.

In case of market share, HP is now leading in each and every section. In PC, HP has a
market share of 18%, while its competitors DELL and IBM have lesser market share.
HP has a huge market share of 30% and 47% in case of server and blade server
section. Similar is the case in Printers section, which HP holds about 40%. HP is now
the second largest player in the IT industry and ranked 12 in top 100 best global
brands.

From the above interpretation, it can be said that, though the merger between HP and
Compaq did not showed a great result immediately, but in long-run, the merger
proved to be successful.

6.7 LESSON FROM THE CASE

The HP and Compaq deal is one of the largest M&A deal in IT industry and it was a
horizontal merger. In today’s volatile market, where major M&A deals are showing negative
growth, but this merger really helped HP to grow and compete with its global competitors.
This merger also helped HP to be a leader in the market. From current statistics, it is observed
that HP is a leader in each and every section, with 18% in PC, 30% in server, 47% in blade
server, 40% in printer section. Now, it is also the second largest player in the IT industry.
Though there were some problems in the merger, but Fioria’s strong decision for the merger
(which was also opposed by the owners of the company) ended with growth to the company.

6.8 CONCLUSION

The talk between the CEO’s of both the company for a licensing agreement went for
more than eight months and finally resulted with the biggest merger between two global IT
players. From the chart give above, it is clear that, there is growth in HPQ, which is constant
and steady.

The merger between HP and Compaq has both positive and negative implications. In
one hand, there is capacity generation, value addition to both the entities, whereas, on the
other hand, there is problem in implementation of strategy.

But, it can now said that, the basic objective behind the merger is fulfilled, i.e. HP is
now the second largest player in IT industry and one of the fast growing companies of the
world.
BIBLIOGRAPHY

 Annual Report of HP
 Annual Report of Compaq
 Annual Report of HPQ
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 http://www.stpm.soft.net/ince.htm
 http://www.economywatch.com/business-and-economy/information-technology-
industry.html
 http://www.educationinfoindia.com/itfaq.htm
 http://www.emergence.nu/events/budapest/ahuja.pdf
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