H R M i M e rg e rs & A cq u i ti n s n si o

HP-Compaq Merger
C a se A n a l s ysi

Presented by Ashish Kumar Jain | Indrani Haldar Needhi Govil| Sandeep Sharma | Vivek Vijayan

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


The HP-Compaq Merger: Case Analysis

HP logo

Over the Ages ….

HP Products • 3 Major Business Segments – – – Imaging and Printing Systems • 1st in global printer market in 2001 Computing Systems • 4th in PC and server markets in 2001 Information Technology Services • 8th in global services market in 2001 07/18/11 The HP-Compaq Merger: Case Analysis .

Compaq eliminated overlap by cutting thousands of jobs worldwide • • • 07/18/11 The HP-Compaq Merger: Case Analysis .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.

Growth.Profit. To concentrate our efforts. and value of the products and services we offer our customers 3. To recognize that profit is the best single measure of our contribution to society and the ultimate source of our corporate strength 2.Customers.The HP way 1. continually seeking new opportunities for growth but limiting our involvement to fields in which we have capability and can make a contribution 4.Field of Interest. To strive for continual improvement in the quality. To emphasize growth as a measure of strength and a requirement for survival 07/18/11 The HP-Compaq Merger: Case Analysis . usefulness.

Organization: To maintain an organizational environment that fosters individual motivation. and a wide latitude of freedom in working toward established objectives and goals 7. which they help make possible 6. initiative and creativity.The HP way 5.Citizenship: To meet the obligations of good citizenship by making contributions to the community and to the institutions in our society which generate the environment in which we operate The HP-Compaq Merger: Case Analysis 07/18/11 page 8 .Employees: To provide employment opportunities for HP people that include the opportunity to share in the company's success.

HP Pre-Merger • • • • • Experienced revenue growth but share price still declined Faced recession in 2001 Pay cuts and layoffs Stock price continued to fall Began to consider acquisitions 07/18/11 The HP-Compaq Merger: Case Analysis .

Financial Crisis faced by HP .

and access devices (PCs & handhelds). with the industry's most complete set of IT products and services for both businesses and consumers § New HP would be the #1 global player in servers. storage and management software § The combination furthers each company's commitment to open. as well as Top 3 player in IT services. imaging & printing. market-unifying systems and architectures and aggressive direct and channel distribution models 07/18/11 The HP-Compaq Merger: Case Analysis .HP Compaq Deal Overview § In September2001 HP announces the Merger with Compaq § Creates an $87 billion global technology leader.

5 billion by mid-fiscal 2004 07/18/11 The HP-Compaq Merger: Case Analysis page 12 .HP Compaq Deal Overview § Combined company can create substantial shareowner value through significant cost structure improvements and access to new growth opportunities § Transaction expected to be substantially accretive to pro forma EPS in first full year of combined operations § The merger is expected to generate cost synergies of approximately $2. the first full year of operations § Fully realized synergies are expected to reach a run rate of approximately $2.0 billion in fiscal 2003.

6325 of an HP share per Compaq share § Current Value: Approximately $25 billion § Ownership: HP shareholders 64%. Compaq shareholders 36% § Accounting: • §B o a rd o f D i cto rs: 5 C o m p a q d i cto rs to re re j i  H P  B o a rd o n §C h a i a n a n d C h i f E xe cu ti O ffi r: rm e ve ce C a rl Fi ri a y o n §Pre si e n t: M i a e lC a p e l a s d ch l §C h i f Fi a n ci lO ffi r: R o b e rt W a ym a n e n a ce §I a g i g & Pri ti g : V yo m e sh Jo sh i m n n n §A cce ss D e vi s: D u a n e Z i e r ce tzn §I I fra stru ctu re : Pe te r B l ckm o re T n a §S e rvi s: A n n Li rm o re ce ve Purchase First half of 2002 § Expected Closing: Key Facts (last 4 qtrs) Revenues Total Assets Operating Earnings • • HP $47.9 billion $1.4 billion $56.HP Compaq Fact Sheet • Transaction Summary: L e a d e rsh ip : § Structure: Stock-for-stock merger § Exchange Ratio: 0.0 billion $32.1 billion Compaq $40.9 billion .4 billion $3.4 billion $2.9 billion Pro Forma Combined $87.4 billion $23.

Shareholder Opposition • Hewlett’s Rationale • Exaggerated importance of the scale of the computer business • The merger will expose HP to brutal low profit PC business • Dilute the value of the lucrative printing business Packard’s Rationale • The new strategies counter the company’s core values • • 07/18/11 The HP-Compaq Merger: Case Analysis .

Value proposition for the Shareholders 07/18/11 The HP-Compaq Merger: Case Analysis .

Management’s Reasons For Merger 1.Strengthened Business Provides Critical Mass in Key Growth Market 4.Complementary Leadership in Key Markets 3.Improved Economics and Innovation 2.Financial Benefits • 07/18/11 The HP-Compaq Merger: Case Analysis .

HP’s Business Portfolio Will Be Worse 2.Negative Financial Impact on HP Stockholders 4.Reasons Against the Merger 1.HP’s Strategic Position Will Not Materially Improve • 07/18/11 The HP-Compaq Merger: Case Analysis .The Integration Risk of the Proposed Merger is Substantial 3.

Strategic dynamics of Acquisition Integration 07/18/11 The HP-Compaq Merger: Case Analysis .

C h a n g i g E n vi n m e n t n ro u l ti g th e In te g ra ti n Lo g i a n d Pe rfo rm a n ce g o a l a n o c s Pro ce ss 2 : C re a ti g th e i te g ra ti n p l n n n o a Pro ce ss 3 : E xe cu ti g O p e ra ti n a lI te g ra ti n n o n o S h o rt te rm p e rfo rm a n ce Pro ce ss 3 : E xe cu ti g S tra te g i I te g ra ti n n c n o Lo n g te rm p e rfo rm a n ce Ti e m .

Formulating the Integration Logic and Performance goals • Merger would create potential competitive advantages from integration. Together they would be #1 in market share HP will become #3 in services The merged entity would have scale advantages. gaining bargaining powers with suppliers With the stronger portfolio . HP would gain “scope” advantages by selling across the board portfolio The HP-Compaq Merger: Case Analysis • • • • • • 07/18/11 . a weakness for HP Compaq was clear #2 in the PC business and stronger on the commercial side. while Compaq was strong in low end industry standard(Intel) servers. but HP was stronger on the consumer side. a weakness for Compaq. greatly improving its product-market position across the computing business HP was strong in mid-range and high end UNIX servers.

70% Estimated 2004 Earnings projected by HP Pre-Merger HP Segment 2004 Projected Operating Earnings((million$) 246800.00% 2678.20% 3.00% 1068.Financial performance projections at the time of merger announcement Estimated 2004 Operating margins projected by HP pre-Merger HP Segment Operating Profit Margin 9.00% 13.00% Enterprise PCs Services Enterprise PCs Services Imaging and Printing Imaging and Printing (no estimate) 07/18/11 The HP-Compaq Merger: Case Analysis .00% 2482.

” Opposition from Walter Hewlett. David Packard and other family members There were financial risks associated with the integration as cost of capital would increase because of greater volatility of PC business Mgmt. had to convince HP’s shareholders to vote in favor of logic based on scale and scope. government and the European Commission of the legality of the proposed merger The HP-Compaq Merger: Case Analysis • • • • • 07/18/11 .S. convince U.Selling the Integration logic externally and internally • Initial response to the intent to merge was mostly negative Michael Dell – “ The dumbest deal of the decade….

– Develop plans for strategic and operational integration – • • Integration team to start multi year initiatives to develop – HP’s direct distribution model(to compete with Dell) and – Global solution delivery capability (to compete with The HP-Compaq Merger: Case Analysis 07/18/11 IBM) . – Define how the new company would work.The Integration plan • The top executive positions for the combined companies named prior to the announcement of the merger Integration team formed to work with the new company’s executive committee to agree on Short term and long term goals.

1 billion saved in first 6 months in procurement Failure to pick up key customer concerns Failing to revise original assumptions cause of internet bust because of no clear feedback loop to the preceding part of the process The HP-Compaq Merger: Case Analysis . $1.Executing Operational Integration • • • • • • 07/18/11 Integration team presented a monthly report to all executive committee members and was reviewed at their meetings Short term synergy goal of $2. reduction plan.5 billion $ was exceeded by over $1billion Tasks related to people selection. pay systems were implemented on schedule Procurement savings plan was also implemented rapidly.

20% 0.14% 9.70% Enterprise PCs Services Imaging & Printing 2468 1068 2678 2482 173 210 1263 3847 07/18/11 The HP-Compaq Merger: Case Analysis .10% 11.17% 1.00% 11.85% 3.70% 0.97% PCs Services -1.10% 9.02% 13.2 0 0 4 n a ts Actual Operating profit margin HP Segment 2002 OPM 2003 OPM 2004 OPM 2004 Estimated OPM Reduced Earnings HP Segment 2004 Projected OE(million $) 2004 Actual OE Enterprise -2.00% 0.Fi a n ci l p e rfo rm a n ce re su l .

Top management should have looked to acquire the necessary expertise as part of a more aggressive plan to close the gap with IBM’s capabilities.Executing strategic integration • Failed to adjust goals in light of changing environment Remaining operational integration tasks related to corporate culture. The HP-Compaq Merger: Case Analysis • • • 07/18/11 . It needed to develop capabilities to serve global accounts.Top management should have driven HP’s direct business model more aggressively to measure against Dell’s projected capabilities by 2004 Competing with IBM. IT integration Competing with Dell.

Changing Environment mulating the Integration Logic and Performance goals Strong Process 2: Creating the integration plan Strong Strong •Exceeded short term performance goals Process 3:Executing Operational Integration •Failed to revise long term Weak performance goals Weak •Failed to maintain effective strategic change capability Process 4:Executing Strategic Integration •Missed long term performance goals Strong Time .

open & regular communication qIntranet portal started to disseminate information quickly q“Fast start” – face-to-face new team discussion meetings • People Strategy program qStabilize – new HP foundation qMobilize – high performance workplace qEnergize – best place to work • • • “Clean room” discussions – planning the integration Culture included in overall integration Linking organization design with overall business strategy The HP-Compaq Merger: Case Analysis 07/18/11 .Role of HR in HP – Compaq merger • Set up clear.

processes or policies qswift decisions regarding HR practices • • • Creating a global job structure qcommon system of job codes. titles & functions Creating a global grade structure qcommon pay ranges across all countries New reward system introduced that acted as a motivator “Voice of the workforce” survey qevaluates level of employee engagement • • 07/18/11 The HP-Compaq Merger: Case Analysis .Role of HR in HP – Compaq merger • Adopt & go methodology qno dual systems.

• Recap of what happened in the background 07/18/11 0 7 /1 8 / The HP-Compaq Merger: Case Analysis page 30 .


• What happened after 2005 07/18/11 The HP-Compaq Merger: Case Analysis page 32 .

HP Timeline (2005 – 2006) • 2005 Acquired Snapfish. IT management software and services company Legal investigations –board members leaked confidential information to media Formal inquiry from Securities and Exchange Commission Shareholder lawsuits • • • • • 07/18/11 The HP-Compaq Merger: Case Analysis . online photo service company • Acquired Scitex Vision. industrial wide-format digital printing • • • 2006 Acquired VoodooPC. high-end gaming PC provider Acquired Mercury Interaction.

etc) for production & distribution through HP Video Merchant Services The HP-Compaq Merger: Case Analysis • • • • • • • • 07/18/11 .HP TimeLine (2007) • 2007 HP & Wataniya Telecom Algeria – advanced billing solution to support new mobile services Established research lab in St. Petersburg. films.000 movies. PC & software businesses Removed itself from NASDAQ listing to reduce the cost of fees and admin duties Filed patent infringement lawsuits against Acer Filed Print cartridge and ink formulation patent infringement case against Pelikan Hardcopy Awarded 7-year contract for technology services with NASA worth $5.6 billion Entered into agreements with 30 content providers for their media libraries (4. TV. Russia (growing economy) Expansion of printing.

for $13.9 billion 07/18/11 The HP-Compaq Merger: Case Analysis . Novell manages technology HP & Acer resolved all claims between them New radio frequency identification (RFID) technology to secure and improve audit controls in the data center US Air Force contract for desktop.HP TIMELINE (2008) • 2008 • • • • • • • • • HP & Unilever signed a 7-year outsourcing contract for the management of Unilever’s technology infrastructure Sara Lee renewed its infrastructure outsourcing services contract for 7-years and from 10 countries to 35 HP & Foxconn started constructing a manufacturing facility in Russia for the production of HP PCs with an investment of $50 million Created HP & Novell alliance for identity and security management solutions – HP sells Novell products. global technology services. laptop. created a cloud computing research and education data center Acquired Electronic Data Systems Corp (EDS). and services Joined with Intel & Yahoo.

global enterprise networking solution.HP Timeline (2009 – Present) • 2009 HP & Sun Microsystems agreement – HP to distribute and provide software support for Sun’s OS on HP’s server • 10-year contract with Avivia (insurance) to manage 2 data centers for $1 billion • 12-year contract with British Columbia Ministry of Labour and Citizens’ Services for hosting and data center services for $586 million • 11/11 – Acquires 3COM. for $2.7 billion • 07/18/11 The HP-Compaq Merger: Case Analysis .

HP Today • Total Revenue: $118.364 million (2008) – 13. 2005 • • 07/18/11 The HP-Compaq Merger: Case Analysis .5% growth over prior year Net Income: $8.7% growth over prior year CEO: Mark Hurd – Started on April 1.329 million (2008) – 14.

2008) – #1 in US. • Canon The HP-Compaq Merger: Case Analysis 07/18/11 • . 26% IBM (2008) • Storage market – EMC. IBM Branding – #12 in Top 100 Best Global Brands (Interbrand. HP (2008) IT services – 2nd largest player (EDS acquisition in 2008) – Competitors: Accenture. 2008) • • • • Leading global printers market – 40% market share in 2008 – Competitors: Xerox. 11% Acer.HP Market Share • Leading global PC market for shipments – 2006 – Took market leadership from Dell – 18% HP. 14% Dell. #10 in world for Environment. 7% Lenovo (2008) Leading global server market – 30% market share in 2008 Leading blade servers segment – 47% HP. Social Impact Ratings (The Economist.

Quarterly PC Tracker 10/09 07/18/11 The HP-Compaq Merger: Case Analysis .PC Shipments for 3Q09 (US & INT’L) • Source: IDC Worldwide.

HP Structure Now • 7 business segments § Technology Solutions Group • Enterprise Storage and Servers (ESS) • HP Services (HPS) • HP Software § Personal Systems Group (PSG) § Imaging and Printing Group (IPG) § HP Financial Services (HPFS) § Corporate Investments 07/18/11 The HP-Compaq Merger: Case Analysis .

So what’s the Verdict? • They did manage to save $3 billion with the merger.000-17. successfully accomplishing their main goal of reducing costs of $2.1 billion However.000 – • • • Success/ Failure? Let time decide… 07/18/11 The HP-Compaq Merger: Case Analysis . that came at the price of firing 44.000 employees over the last 3 years – Original estimate: 15.

Thank You 07/18/11 The HP-Compaq Merger: Case Analysis page 42 .

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