Compaq was a company founded in 1982 that developed, sold, and supported

computers and related products and services. Compaq produced some of the first
IBM PC compatible computers, being the first company to legally reverse engineer
the IBM Personal Computer. It rose to become the largest supplier of PC systems
during the 1990s before being overtaken by HP in 2001. Struggling to keep up in
the price wars against Dell, as well as with a risky acquisition of DEC, Compaq
was acquired for US$25 billion by HP in 2002.[5][6] The Compaq brand remained
in use by HP for lower-end systems until 2013 when it was discontinued.

The company was formed by Rod Canion, Jim Harris and Bill Murto—former
Texas Instruments senior managers. Murto (SVP of sales) departed Compaq in
1987, while Canion (president and CEO) and Harris (SVP of engineering) left
under a shakeup in 1991, which saw Eckhard Pfeiffer appointed president and
CEO. Pfeiffer served through the 1990s. Ben Rosen provided the venture capital
financing for the fledgling company and served as chairman of the board for 18
years from 1983 until September 28, 2000, when he retired and was succeeded by
Michael Capellas, who served as the last chairman and CEO until its merger with
HP.

STRUGGLES

However Compaq still struggled against lower-cost competitors with direct sales
channels such as Dell who took over the top spot of PC manufacturer from
Compaq in 2001.[79] Compaq relied significantly on reseller channels, so their
criticism caused Compaq to retreat from its proposed direct sales plan, although
Capellas maintained that he would use the middlemen to provide value-added
services.[61] Despite falling to No. 2 among PC manufacturers, Capellas
proclaimed "We are No. 2 in the traditional PC market, but we're focused on
industry leadership in the next generation of Internet access devices and wireless
mobility. That's where the growth and the profitability will be." The company's
longer-term strategy involves extending its services to servers and storage
products, as well as handheld computers such as the iPAQ PocketPC which
accounted for 11 percent of total unit volume.[80]

During November 1999, Compaq began to work with Microsoft to create the first
in a line of small-scale, web-based computer systems called MSN
Companions.[81]

In 1998, Compaq also signed new sales and equipment alliance with NaviSite.
Under the pact, Compaq agreed to promote and sell NaviSite Web hosting
services. In return, NaviSite took Compaq as a preferred provider for its storage
and Intel-based servers.

Compaq struggled as a result of the collapse of the Dot-com bubble bust, which
hurt sales of their high-end systems in 2001 and 2002, and they managed only a
small profit in a few quarters during these years. They also accumulated $1.7
billion in short-term debt around this time.[82] The stock price of Compaq, which
was around $25 when canellas became CEO, was trading at half that by 2002.

Acquisition by Hewlett-Packard
In 2002, Compaq signed a merger agreement with Hewlett-Packard for $24.2
billion,[84] including $14.45 billion for goodwill, where each Compaq share would
be exchanged for 0.6325 of a Hewlett-Packard share. There would be a termination
fee of $675 million USD that either company would have to pay the other to break
the merger.[85] Compaq shareholders would own 36% of the combined company
while HP's would have 64%.[85] Hewlett-Packard had reported yearly revenues of
$47 billion, while Compaq's was $40 billion, and the combined company would
have been close to IBM's $90 billion revenues. It was projected to have $2.5 billion
in annual cost savings by mid-2004. The expected layoffs at Compaq and HP, 8500
and 9000 jobs, respectively, would leave the combined company with a workforce
of 145,000.[83]

Both companies had to seek approval from their shareholders through separate
special meetings. While Compaq shareholders unanimously approved the deal,
there was a public proxy battle within HP as the deal was strongly opposed by
numerous large HP shareholders, including the sons of the company founders,
Walter Hewlett and David W. Packard, as well as the California Public
Employees’ Retirement System (CalPERS) and the Ontario Teachers Pension
Plan.[86][87] Walter Hewlett only reluctantly approved the merger, in his duty as a
member of the board of directors, since the merger agreement "called for
unanimous board approval in order to ensure the best possible shareholder
reception".[85] While supporters of the merger argued that there would be
economies of scale and that the sales of PCs would drive sales of printers and
cameras, Walter Hewlett was convinced that PCs were a low-margin but risky
business that would not contribute and would likely dilute the old HP's
traditionally profitable Imaging and Printing division.[82][88] David W. Packard
in his opposition to the deal "[cited] massive layoffs as an example of this
departure from HP’s core values...[arguing] that although the founders never
guaranteed job security, 'Bill and Dave never developed a premeditated business
strategy that treated HP employees as expendable.'" Packard further stated that
"Fiorina’s high-handed management and her efforts to reinvent the company ran
counter to the company’s core values as established by the founders". The
founders' families who controlled a significant amount of HP shares were further
irked because Fiorina had made no attempt to reach out to them and consult about
the merger, instead they received the same standard roadshow presentation as other
investors.[85]

Analysts on Wall Street were generally critical of the merger, as both companies
had been struggling before the announcement, and the stock prices of both
companies dropped in the months after the merger agreement was made public.
Particularly rival Dell made gains from defecting HP and Compaq customers who
were wary of the merger.[89] Carly Fiorina, initially seen as HP's savior when she
was hired as CEO back in 1999, had seen the company's stock price drop to less
than half since she assumed the position, and her job was said to be on shaky
ground before the merger announcement.[85] HP's offer was regarded by analysts
to be overvaluing Compaq, due to Compaq's shaky financial performance in the
past recent years (there were rumors that it could run out of money in 12 months
and be forced to cease business operations had it stayed independent), as well as
Compaq's own more conservative valuation of its assets.[82][83][90] Detractors of
the deal noted that buying Compaq was a "distraction" that would not directly help
HP take on IBM's breadth or Dell Computer's direct sales model. Plus there were
significant cultural differences between HP and Compaq; which made decisions by
consensus and rapid autocratic styles, respectively. One of Compaq's few bright
spots was its services business, which was outperforming HP's own services
division.[91]

The merger was approved by HP shareholders only after the narrowest of

margins,[clarification needed] and allegations of vote buying (primarily involving
an alleged last-second back-room deal with Deutsche Bank) haunted the new
company. It was subsequently disclosed that HP had retained Deutsche Bank's
investment banking division in January 2002 to assist in the merger. HP had agreed
to pay Deutsche Bank $1 million guaranteed, and another $1 million contingent
upon approval of the merger. On August 19, 2003, the U.S. SEC charged Deutsche
Bank with failing to disclose a material conflict of interest in its voting of client
proxies for the merger and imposed a civil penalty of $750,000. Deutsche Bank
consented without admitting or denying the findings.[92]

Compaq's pre-merger ticker symbol was CPQ. This was combined with Hewlett-
Packard's ticker symbol (HWP) to create the current ticker symbol (HPQ).