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nCompaq Merger Dea| Des|gn

lo o Jeol sboolJot we jost focos oo ptlce? wby Jo we oeeJ oll of tbe otbet ltems lo o tetm
1erm sheeL also conLalns lmporLanL lnformaLlon llke
a) nershlp posL Lhe merger
ne of Lhe mosL lmporLanL aspecLs of Lhe merger of equals as Lhls merger ls pro[ecLed Lo be
lL clearly lays ouL Lhe onershlp ln Lerms of funcLlonal and managemenL hlch ls very
lmporLanL Lo dlsplay Lo Lhe orld and more lmporLanLly Lo Lhe employees of Lhe flrm
b) key sLakeholders
c) lnformaLlon regardlng 1ax and accounLlng
d) lL conLalns lmporLanL lnformaLlon regardlng Lhe board composlLlon posLmerger lncludlng
key posLs
e) llnally lL conLalns lmporLanL lnformaLlon llke haL klnd of voLlng ls requlred LermlnaLlon
fees Synergles eLc

ow coolJ lt be posslble tbot compop woolJ sell fot socb o low ptemlom ovet lts motket voloe?
uoes tbe excbooqe totlo moke seose?
ased on Lhe daLa glven ln LxhlblL 4 as calculaLed ln Lhe aLLached xls Lhe exchange raLlos have
maxlmum value ranglng from 082 Lo 132 1hese values are based on Lhe Synergy values as
glven by Coldman and arney

As per Lhe L of Compaq lL reglsLered a loss of more Lhan a bllllon 1hus Lhe exchange raLlo of
06 seems Lo be falr Also Lhe hlsLorlcal daLa as glven ln exhlblL 4 also polnLs Loards a loer
exchange raLlo

We belleve LhaL due Lo sLaLe of Compaq P as able Lo negoLlaLe a good exchange raLlo

Also recesslon around 2001 Llmellne played a role ln lo valuaLlon for Compaq 1here ls largely
a negaLlve ouLlook for economy and parLlcularly for Lech secLor LhaL Llme

ow Jo tbe tetms of tbe metqet ollocote powet lo tbe bootJ ooJ moooqemeot of tbe oew fltm?
ls tbls o metqet of epools ot o tokeovet? wbot ote tbe soclol lssoes to tbe Jeol?
lollolng are Lhe key aspecLs of Lhe company posLmerger
a) P CL Chalrman conLlnue Lo be Lhe merged company CL Chalrman Compaq CL
as glven Lhe resldenL posL ln Lhe ne flrm
b) ln 6 ere from P and 3 from Compaq
c) uL of 20 only 6 execuLlve offlcers ere from Compaq
d) llnally Lhe onershlp of ne flrm 64 P and 36 Compaq
As of merger daLe Lhe markeL value of P as around $46 bllllon as agalnsL $21 bllllon for
Compaq lf e see purely from Lhe markeL value perspecLlve Lhe poer allocaLed ln Lhe ne
company seems Lo be falr Looklng aL Lhe balance sheeL reveals Lhe same plcLure Compaq
seems Lo be around 70 of Lhe slze of P lf e look aL asseLs
As glven ln Lhe case ln mergers of equals almosL no premlum ls pald and Lhe companles are
falrly equal ln slze 1hls very much seems Lo be Lhe case here lLh P and Compaq
1he exchange raLlo used as around 06 hlch as much loer Lhan calculaLed raLlo uslng Lhls
raLlo around 18 premlum as pald hlch ls noL much conslderlng Lhe slze of Compaq and Lhe
proposed Synergles
1he facL LhaL Lhls as more of a merger of equals ls also hlghllghLed by Lhe facL LhaL boLh P and
Compaq ere Lroubled aL Lhe Llme of Lhls merger Compaq as ln red hlle P proflLs ere
very lo
1he key soclal lssues are malnly due Lo Lhe pro[ecLed [ob losses hlch lll happen due Lo Lhls
merger lL ls evldenL LhaL due Lo overlap ln mulLlple buslnesses and durlng consolldaLlon many
[obs lll be losL Clven Lhe poer LhaL P has posL Lhe merger lL ls also evldenL LhaL ma[orlLy of
Lhese losses lll be from Compaq Lven P [ob losses lll pose a soclal lssue ConsolldaLlon of
buslnesses lll also lead Lo closure of planLs and oLher aspecLs of Lhe relaLed buslness

Lher Lhan Lhls Lhere ere quesLlons abouL Lhe synchronlzaLlon from Lhe organlzaLlon's
members lLh each oLher 1hls as due Lo Lhe alLernaLlon ln Lhe organlzaLlon culLure

ow sboolJ kotbtyo Mocolestet vote bet sbotes?
Some of Lhe key poslLlves of Lhls merger ould be
esulLlng cosL saves
osslble cross selllng and common use of Lechnology
ConsolldaLlon of buslness lll lead Lo sLronger markeL presence and brand value
lrom Lhe flnanclal sLandpolnL
,erger lll resulL ln subsLanLlal proflL and llquldlLy
Around $ 2 llllon ls Lhe esLlmaLed value of synergles
rovldes Lhe comblned enLlLles beLLer ablllLy Lo relnvesL
lrom Lhe markeL perspecLlve
O ,erger lll creaLes lmmedlaLe end Lo end leadershlp
O Compaq as a clear #2 ln Lhe C buslness and sLronger on Lhe commerclal slde Lhan P buL P
as sLronger on Lhe consumer slde 1ogeLher Lhey ould be #1 ln markeL share ln 2001
O 1he merger ould also greaLly expand Lhe numbers of Lhe company's servlce professlonals As a
resulL P ould have Lhe largesL markeL share ln all hardare markeL segmenLs and become
Lhe number Lhree ln markeL share ln servlces
O lmproves access Lo Lhe markeL lLh Compaq's dlrecL capablllLy and lo cosL sLrucLure
O 1he much blgger company ould have scale advanLages galnlng bargalnlng poer lLh
suppllers and scope advanLage galnlng share of alleL ln ma[or accounLs
peraLlonal beneflLs
O P and Compaq have hlghly complemenLary capablllLles
O P as sLrong ln mld and hlghend unlx servers a eakness for Compaq hlle
Compaq as sLrong ln loend lndusLry sLandard (lnLel) servers a eakness for P
O 1op managemenL has experlence lLh complex organlzaLlonal changes
O ,erger ould resulL ln ork force reducLlon by around 13000 employees savlng around $13
bllllon per year
1hese polnLs are hlghllghLed ln Lhe explanaLlon belo
unlque pporLunlLy 1he poslLlonlng of Lhe enLerprlse lll beLLer lLh Lhe merger 1he
reason behlnd Lhe same as LhaL no Lhe value creaLlon ould be fresh leadershlp
quallLles ould lmprove capablllLles ould lmprove and so ould Lhe sales as ell as
Lhe company's sLraLeglc dlfferenLlaLlon ould be beLLer Lhan Lhe presenL compeLlLors
Aslde from Lhls lL's posslble Lo also access Lhe capablllLles of Compaq dlrecLly hence
loerlng Lhe cosL sLrucLure ln succeedlng as Lhe largesL ln Lhe lndusLry llnally you
could also see a chance ln relnvesLlng
SLronger Company 1he proflLablllLy lll rlse ln Lhe enLerprlse access and servlces
secLors ln hlgh degrees 1he company can also see a beLLer opporLunlLy ln Lhe research
and developmenL 1he flnanclal condlLlons of Lhe company lLh respecL Lo lLs Ll1 and
neL cash are also abouL Lhe lncremenLal slde
Compelllng Lconomlcs 1he expecLed accumulaLlon ln ll galns lll be 13 ln Lhe flrsL
flnanclal year 1he organlzaLlon could also conducL a much beLLer segmenLaLlon from
Lhe markeL Lo forecasL lLs revenues generaLlon 1hls could vlslL as much as 2 and a half
bllllon dollars of annual synergy
CapablllLy Lo LxecuLe ecause Lhere ould be lnLegraLlon lLhln Lhe plannlng
procedures from Lhe company Lhe llkellhood of value creaLlon ould also be huge
Along lLh LhaL Lhe experlence of leadlng a dlverslfled employee sLrucLure ould also
be Lhere

Pavlng sald LhaL e belleve Lhere are some key conslderaLlons Lo be made for Lhe merger
O P's sLraLegy ls Lo move Lo hlgher margln less commodlLy llke buslness hence merglng lLh
Compaq ls a sLraLeglc mlsflL
O Larger C poslLlon resulLlng from Lhe merger ls llkely Lo lncrease rlsk and dlluLe shareholders
lnLeresL ln lmaglng and prlnLlng
O Loer groLh prospecLs on lnvesLed caplLal
O ,arkeL poslLlon ln key aLLracLlve segmenLs remaln same
O Servlces remaln hlghly elghed Lo loer margln segmenL
O no precedenL for success ln blg Lechnology LransacLlons
O ,arkeL reacLlon for Lhe merger ls negaLlve
O evenue rlsk mlghL offseL synergles
O P and Compaq have dlfferenL culLures
O lncreased equlLy rlsk and hence cosL of caplLal
As already deplcLed above e belleve Lhere ould be execuLlon challenges and merger soclal
lssues buL Lhe economlcs of Lhe merger are good lf Lhese lssues are ell handled and rlsks are
mlLlgaLed 1hus e belleve LhaL ,acalesLer should voLe her shares ln favor