Hewlett-Packard Compaq

Merger
Business Decision Making
Spring 2005

What We Hoped to Learn

Basic M&A criteria
How the AHP process really works
What happened with HP & Compaq and
how can we make it better in the future?

Outline
I.

Organizational Structure

II.
III.
IV.
V.
VI.

Introduction
Criteria
Alternatives
Hierarchy
Conclusion

Organizational Structure
COORDINATOR
Shannon Caputo
ALTERNATIVES
Steve Piskadlo
Paul Ferraro
Shawn Standen

CRITERIA
Phil Laspisa
Kathleen Cardelli
Chris Skorski
Cassie Knox

EXPERTS
WRITERS
Evan Taylor Melissa Shah
-Presentations Jonathan Lai
Chris Skorski
-Expert Choice

DOMAIN EXPERTS:
Dr. Stephen Andriole
Professor John Toppel

Outline
I.

Organizational Structure

II. Introduction
III.
IV.
V.
VI.

Criteria
Alternatives
Hierarchy
Conclusion

Introduction to HP
Well-respected systems vendor
Smaller, but worthy competitor to IBM
Competes mainly in the hardware
business with desktops and servers
Lacking in the services business
Undisputed leader with its line of PC
printers

Introduction to Compaq
Compaq sales leveled off with added
competition from Dell
Compaq was best known for its personal
computer offerings
After paying $5.4 billion to finance a
merger with Digital Equipment, Compaq
eliminated overlap by cutting thousands of
jobs worldwide

Carly Fiorina:
C.E.O. of Hewlett-Packard

Mike Capellas:
C.E.O. of Compaq

Why Merge?
To compete with IBM and other companies
The combined services business will have
65,000 services professionals vs.
100,000-plus for IBM
Reduce Costs
Bolster stock

Merger Dates
September 4, 2001 - HP and Compaq
announced a definitive merger agreement
to create an $87 billion global technology
leader.
Eights months later on May 3, 2002 HP
and Compaq officially merge.

What HP Has to Say on Why

Because in one strategic move, we will become market leaders in servers, in storage
and in management software -- the essentials of business infrastructure, where
leadership really counts.
Because we will greatly strengthen our depth and breadth of technology solutions at a
time when customers demand integrated, end-to-end solutions.

Because more inventors and engineers will be

focused on solving the toughest technology
challenges of our times -- together.

Because combined we will lead the march toward open standards more effectively
than either company could on its own.
Because for our employees, customers and shareowners, we will be a stronger, more
vibrant HP, better conformed to lead and grow under market conditions that will
demand unprecedented integration, breadth and flexibility.

Because in our industry, to stand still is to fall

behind.

Outline
I.
II.

Organizational Structure
Introduction

III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion

Main Criteria
Ability to Improve
Financial Performance
Ability to Evolve
Company
Ability to Integrate

Financial Implications
Treeview

Goal: Should HP and Compaq Merge?

Ability to Improve Financial Conditions (L: .460 G: .460)
Ability to Decrease Costs (L: .643 G: .296)
Ability to Increase Sales (L: .357 G: .164)
PC Technology (L: .422 G: .069)
Server Technology (L: .228 G: .038)
Service Technology (L: .210 G: .034)
Printer Technology (L: .140 G: .023)
Ability to Evolve Company (L: .358 G: .358)

Server Technology (L: .228 G: .038)

Ability
Evolve
Company
Serviceto
Technology
(L: .210
G: .034)
Printer Technology (L: .140 G: .023)
Ability to Evolve Company (L: .358 G: .358)
Increase Intellectual Property (L: .600 G: .215)
Improving Brand Value (L: .400 G: .143)
Image (L: .396 G: .057)
Awareness (L: .366 G: .052)
Loyalty (L: .238 G: .034)
Ability to Integrate (L: .182 G: .182)

Improving Brand Value (L: .400 G: .143)

I mage (L: .396 G: .057)

Ability to Integrate

Awareness (L: .366 G: .052)

Loyalty (L: .238 G: .034)

Ability to Integrate (L: .182 G: .182)

Human Capital Management (L: .364 G: .066)
Employees/ Culture (L: .667 G: .044)
Channel Partners (L: .333 G: .022)
Company Organizational Structure (L: .251 G: .046)
Resources (L: .222 G: .040)
Technology (L: .337 G: .014)
Marketing (Brand) (L: .268 G: .011)
I T I nfrastructure (L: .235 G: .009)
Relationships with Customers & Suppliers (L: .161 G: .007)
Future Planning (L: .163 G: .030)
Strategy (L: .750 G: .022)
Tactics (L: .250 G: .007)

Outline
I. Organizational Structure
II. Introduction
III. Criteria

IV. Alternatives
V. Hierarchy
VI. Conclusion

Alternatives
Should they Merge?
Should they Not Merge?

YES
NO

Outline
I.
II.
III.
IV.

Organizational Structure
Introduction
Criteria
Alternatives

V. Hierarchy
VI. Conclusion

Expert Choice

Outline
I.
II.
III.
IV.
V.

Organizational Structure
Introduction
Criteria
Alternatives
Hierarchy

VI. Analysis & Recommendations

VII. Conclusion

Results
NO
YES

53.4%
46.6%

Based on the M&A

criteria recommended
by our domain
experts, HP and
Compaq should not
have merged

Sensitivity Analysis
To change the final outcome
Ability to Improve Financial Performance must
increase from 46.6 to 55.7 or a 19.5% change
Ability to Evolve Company must decrease from
35.8 to 27.8 or a -22.3% change
Ability to Integrate does not affect the decision
Overall, the final answer is not very sensitive to
any of the criteria

Outline
I.
II.
III.
IV.
V.
VI.

Organizational Structure
Introduction
Criteria
Alternatives
Hierarchy
Analysis & Recommendations

VII. Conclusion

What Happened?
They did manage to save $3 billion with
the merger, successfully accomplishing
their main goal of reducing costs of $2.1
billion
However, that came at the price of firing
44,000 employees over the last 3 years
Original estimate: 15,000-17,000

Conclusions
Based on the criteria the
HP and Compaq
merger should not have
gone through.
Problems with
integration as well as
evolving the company
can be forecasted
through the AHP
process we have
shown here today.

Mark Hurd: HPs New C.E.O.

Mark Hurd, a former president at NCR corporation,

where he spent 25 years; was appointed C.E.O. and
president of Hewlett-Packard on March 29, 2005.

Thank You!
Questions?