Hewlett-Packard (HP) - Pre merger

• Stanford engineers Bill Hewlett and David Packard started HP in

California in 1938 as an electronic instruments company.
• In 1963, HP entered into a joint venture agreement with Yokogawa
Electric Works of Japan to form Yokogawa-Hewlett-Packard.
• In 1966, the company established HP Laboratories, to conduct
research activities relating to new technologies and products.
During the same year, HP designed its first computer for controlling
some of its test-and-measurement instruments.
• In 1974, HP launched its first minicomputer.
• During the 1980s, HP emerged as a major player in the computer
industry, offering a full range of computers from desktop machines
to powerful minicomputers.
• Besides computer related products and services the company also
made electronic products and systems for measuring computing
and communication.
• At the time of merger, net revenues of $48.78bn, HP was ranked
19th in global Fortune 500 list.
 Compaq – Pre Merger
• Compaq was founded by Joseph R. Canion along with some Texas
Instruments colleagues in Feb. 1982 with a capital of $1.5 million.
• Initially it manufactured and sold IBM compatible computers but,
soon came to be seen as a major alternative to IBM for supply of
computers.
• It offered three broad category of products:
 The enterprise Computing Group
 The Commercial PC Group
 The Consumer PC Group
• In 1988, Compaq acquired Digital Equipment Corp. for $9.1 billion
to become ‘full services’ computer company.
• At the time of merger, Revenues of $42.38 billion, it secured 27th
rank in Global Fortune 500 list.
 Growing problems at HP
• HP was unable to adapt to technological
innovation fast.
• Margins lowered day by day.
• Printing line was facing strong competition from
Lexmark and Epson who were providing low
quality inexpensive printers.
• Need of a strong complementary business line.
• Recession, pay cuts and lay offs.
SOLUTION - “ MERGER “
 Why merge??
• Eliminate one player in an oversupplied PC Market
• To compete with IBM and other companies
• Reduce Costs.
• 1990’s IT recessionary phase.
• Advantage of more volume of sales.
• Development of direct distribution capability.
• Strengthen sales force
• Improve customer base
 Why 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.
• Compaq was strong in low-end industry
standard (Intel) servers.
• Best known for its PCs, also had enterprise
businesses that it had built up through earlier
acquisitions of its own.
 SUMMARY OF THE DEAL
Announcement Date September 4, 2001
Name of the merged entity Hewlett Packard
Chairman and CEO Carly Fiorina
President Michael Capellas
Ticker symbol change From HWP to HPQ
Form of payment Stock
Exchange Ratio 0.6325 HPQ shares to each Compaq
Shareholder
Ownership in merged company 64% - former HWP shareholders
36% - former CPQ shareholders
Ownership of Hewlett and Packard 18.6% before merger
Families 8.4% after merger
Deal size $25 billion
 Merger benefits
• HP would become the undisputed worldwide
leader in revenues for server, access devices(PCs)
and imaging and printing.
• Cross selling and technology.
• Economies of scale - volume advantage : Savings
of $2.5bn
• Cost saving of 3% or 4% on materials.
• Direct selling using Compaq sales force.
• Have operations in more than 160 countries with
over 145,000 employees.
• Will provide complete set of products and
services.
 Conclusion
• The merger suffered from autocratic leadership
and initial financial stress
• Successful integration is the key
• Operational integration and strategic integration
both should take place simultaneously
• Over the time the synergy strategy gives fruitful
results
• The benefits of economies of scale and scope can
be exploited in IT industry
EPS