A strategy is a long-term plan that you create for your company to reach the desired, future state you

envision.
A strategy includes your company's goals and objectives, the type of products/services that you plan to build, the customers
who you want to sell to and the markets that you serve to make profits

These strategies are cost leadership, differentiation, and focus. The three types were discovered by the Harvard professor
Michael Porter and many works that discuss strategy refer back to his two books

Analysis
SWOT Analysis
In order to understand the situation clearly, SWOT analysis is performed below.
Strengths:
 Both companies have significant brand recognition and brand loyalty in IT industry with strong customer base and market share.
 HP is a dominant player within the printing and imaging industry in the UNIX market whereas,Compaq is famous for providing high quality PCs.
 Both companies have strong research and development department, which has ledtowards more innovative product offerings of both companies.
 Resource availability of both companies is tremendous along with significantfinancialresources to support the proposed merger.
Weaknesses:
 HP is facing the problem of lack of organic growth strategy whereas,Compaq does not have strong presence in UNIX market.
 Announcement of merger resulted inthe decline in the HP’s share prices.
 Low support from the management such as Walter Hewlett’s opposition of the merger after accepting it in the meetings created a sense of
uncertainty for the merger.
 Duplication of management systems and no direct distribution plan regardingthe proposed merger.
Opportunities:
 A chance for HP to adjust itself to the changing trend.
 Theprobability to excel in different market segments rather than only Imaging and Printing.
 It can result in the new company being themarket leader along with value creation in the existing and new products.
 HP’s core objective to provide end -o-end solution to the clients and its desire to regain its previous position in the PC’s and servers can be
achieved.
 The merger of both the companies can havea major impact on the market.
 Both the companies have their own area of expertise, which combined, can prove to be a threat to the competitors.
Threats:
 The shareprice can decrease further after the opposition from HP.
 Both companies are operating in the IT industry and there is a changing trend in the technology therefore, the short life of technology is a serious
threat for both companies.
 Projected loss as a result of merger.
 Acquisition risk cannot be ignored.
 Both the companies are facing strong competition from theirpeers as well as theirindustry margins are decreasing due to the economic downturn.
Analysis of the merger strategy to identify its effectiveness
Initially, the merger does not seem like a good decision as it resulted in a decrease in the share price and faced lots of criticism by analysts and
opposition by many investors, which meant thatmost of the stakeholders were against the deal, which madethis merger less attractive. In addition
to this, there were cultural issues and pricing issues between both companies, and analysts assumed that these issues will goagainst the
proposed merger therefore, initially this merger is supposed to be ineffective. However, the managements of both companies werefirm in
executing the deal and predicted long term benefits of economic growth and innovation. The objectivesand long term focuses of both companies
are very much aligned to facilitate the consumers with high qualityproducts in the technology industry. HP’s management argued as to how it
could generate strategic synergies, economies of scale and stronger market position. The managementpredicted annual cost savings of $2.5
billion, and 13% increase in the earnings in the first year after the acquisition. As both companies have significant brand recognition, and are
operating inthe same industry and servingthesame customers, therefore by looking at the objective of providing low cost, high quality and
complementary products, this merger strategy seems like a good decision, but in order to execute the strategy, the interest of all shareholders
and of the key stakeholders must be satisfied as this merger will also provide a competitive advantage over its competitors.
Value of synergies
The value of the expected synergy is calculated by assuming two scenarios such as in the first scenario, the cost savings of 3% are assumed
along with the increase in the sales and return. In the second scenario, the value of synergy is calculated by assuming 0% cost savings however,
the same revenue growth and return percentage have been taken for fair compression. In both thescenarios, the proposed merger is generating
significant synergy and it is expected that the value of synergy will be high and could also cover the diluted earnings of HP’s shareholders along
with providing long-term benefits