Presented by Naweed Akram

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Founded in 1982 Primary strength – Innovation and Standards Large Market Share (specially overseas) Market leader in fault tolerant computing and industry standard servers Strong competition from
◦ ◦ ◦ ◦ IBM HP Dell Sun Microsystems ◦ #2 in PC business ◦ Close Ally of Microsoft

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  Missed the online bus Bad Investment .Digital Equipment (AltaVista) Change of Management ◦ 15.000 layoffs and loss in 1998   Firm was too small and poorly run to maintain its wide array of wonderful products and services ◦ New management unable to maintain stability ◦ Bad investments ◦ Got caught in a cycle of cost cutting and layoffs .

000 employees and revenues of $48.      Known as a box vendor / one-stop shop for business applications Started in 1938 by two Stanford graduates Introducer of the first ever PC in 1980 85.8 bn in 2000 Ranked 13th among Fortune 500 Competition ◦ ◦ ◦ ◦ Compaq Dell IBM Canon .

      Not adapting to technological innovation Margins were going down Not ranked among top 3 in servers. storage or services Stiff competition from Lexmark and Epson Needed to build strong complementary business lines CEO – Carly Fiorina .

    Joined in 1999 hoping to excite a complacent HP Cut salaries. Bad Culture. Bad Execution  Fall in Stock Price . laid off employees Wanted to make high end computers as HP’s primary focus Failed to Achieve ◦ Good Strategy.

   Championed by Fiorina herself Horizontal merger Initiated Sep 2001. Completed May 2002 ◦ Just 8 month process    Biggest merger in IT history 25B$ in all stock purchase 1 million working hours spent on merger integration .

   Create a full-service technology firm capable of doing everything from selling PCs and printers to setting up complex networks Eliminate redundant product groups and costs in marketing. advertising. and shipping. while at the same time preserving much of the two companies’ revenues. Creates immediate end to end leadership .

 Become #1 in market shares by 2001 ◦ Compaq stronger on the commercial side ◦ HP stronger on the consumer side  Become #3 Service Provider by 2002 ◦ Expand the numbers of the company’s service professionals  The Scale advantage ◦ Bargaining power with suppliers  The Scope advantage ◦ Share of wallet in major accounts .

a weakness for HP  Result in work force reduction by around 15.000 employees saving around $1. Highly complimentary R&D capabilities ◦ HP strong in mid and high-end UNIX servers. a weakness for Compaq ◦ Compaq strong in low-end industry standard (Intel) servers.5 billion per year .

   Result in substantial increase in profit margin and liquidity $2.5 billion is the estimated value of annual synergies Provides the combined entity with better ability to reinvest .

     Execution Challenges Overlapping PCs business Larger PC position moves focus away from imaging and printing Market reaction for the merger is negative HP and Compaq have different cultures .

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   Recession: The largely negative outlook for the economy overall and the tech sector in particular in 2001 Volatile trading activity: NASDAQ suffered a 30% drop in the 12 months preceding the merger announcement Valuation multiples for comparable companies and recent comparable transactions were broadly distributed .

 Heloise Merger Corporation (a subsidiary) was created solely to facilitate the merger ◦ Result: A tax free reorganization in which HP would control all of Compaq’s assets through a wholly owned subsidiary Compaq Hewlett Packard Stock (Cash for fractional shares) Compaq Shareholders Stock Heliose Merger Corp .

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6325 HP shares paid for each Compaq share ◦ Market Exchange Ratio: 0.   Compaq’s Valuation: $21 bn Consideration Paid: $25 bn 0.9% per share .5356 shares  Premium: 18.

000 ◦ Compaq: 8.000 Jobs Eliminated ◦ HP:6.   Combine Product road maps Deliver on the short-term synergies in six to 12 months Don't need two Unix or NT development teams ◦ 15.500  Achieving the integration will be tied to peoples compensation packages .

3B annually Restructured direct material procurement to save $450M annually Redesigned products & re-qualifying components to save $300M Consolidated multiple manufacturing sites achieving $120M in annualized savings Achieved manufacturing savings of $200M annually Reduced supply chain headcount by 2.700 Realized logistics savings of $100M+ annually Indirect Procurement negotiated annual savings of $220M .        Achieved merger-related cost savings of more than $1.

 Out-competed Dell ◦ The new HP occupied 50% of retail shelf space ◦ Thanks to Compaq direct sales model  Out-competed IBM ◦ Managed 40 big deals with global enterprises in next 4 years (outbid IBM) ◦ Thanks to expertise of highly skilled Compaq consultants .

 In mid-July 2007 ◦ ◦ ◦ ◦ HP's total shareholder returns were up 46 percent Standard & Poor's IT index sunk 9 percent Rival IBM down 23 percent Dell up only 2 percent. .

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and lowering costs for both parties. it enables suppliers to pass associated discounts onto customers such as HP   Enhanced supply and demand visibility  Elimination of non-value-added steps. It also enables suppliers to build purchasing. manufacturing. increasing business collaboration. such as administration. and costs . HP now offers a one-stop shopping experience for global corporate customers The economies of scale have helped HP focus on its legacy of manufacturing innovation Ease of doing business ◦ The company has the ability to procure everything from PDAs to commercial printers and servers from the same source  ◦ It can build and deliver precisely the product that customers need and want to buy ◦ The supply chain strategy allows a single point of collaboration with HP. and logistical efficiencies into their own supply chains. simplifying suppliers’ interaction with HP. Further. ◦ This visibility improves participants’ ability to predict demand.

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