Hp-Compaq M&a
The HP-COMPAQ Merger
“A hi-tech giant or another merger fiasco”
1
Executive Summary. The world’s largest corporate Information Technology merger began in September 2001 when HP announced that they would acquire Compaq in an all stock purchase valued at $25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder and regulatory approval with the end result being one company. The new HP has annual sales of approximately $90 billion which is comparable to IBM, and an operating incom e of almost $4 billion. The merger was led by Carly Fiorina, the chairwoman and CEO of HP. The president of the new HP was Michael Capellas who was the former chairman and CEO of the old HP and who has recently resigned and is now the CEO of World Com. Overall, many analysts were critical of the merger from the beginning since both Compaq and HP were struggling companies before the merger. The common question that has been raised by analysts is: Do two struggling companies make a better merged company? Some analysts have indicated that the merger is a gamble and that it is difficult to see any focussed logic behind the merge considering that most I.T acquisitions are not successful. Prior to the merger, Compaq has been unable to grow despite previously buying Digital, while HP was trying to grow internally, without much success. Both companies were still adjusting to acquisitions they have made in the past and both were adjusting to new leadership (Fiorina and Capellas). The merger deal also means that there are many overlaps in products, technologies, distribution channels, services, facilities and jobs. Employee morale is a threat to a successful merger as there has been numerous layoffs -15,000 employees. The claimed annual cost savings of about $2.5 billion dollars by the year 2004 amounts to only 3 % of the combined costs of both companies. Gartner Group research has indicated that the merged company has failed to do a good enough job of presenting the
“A hi-tech giant or another merger fiasco”
1
Executive Summary. The world’s largest corporate Information Technology merger began in September 2001 when HP announced that they would acquire Compaq in an all stock purchase valued at $25 billion. Over an 8 month period ending in May 2002, the merger passed shareholder and regulatory approval with the end result being one company. The new HP has annual sales of approximately $90 billion which is comparable to IBM, and an operating incom e of almost $4 billion. The merger was led by Carly Fiorina, the chairwoman and CEO of HP. The president of the new HP was Michael Capellas who was the former chairman and CEO of the old HP and who has recently resigned and is now the CEO of World Com. Overall, many analysts were critical of the merger from the beginning since both Compaq and HP were struggling companies before the merger. The common question that has been raised by analysts is: Do two struggling companies make a better merged company? Some analysts have indicated that the merger is a gamble and that it is difficult to see any focussed logic behind the merge considering that most I.T acquisitions are not successful. Prior to the merger, Compaq has been unable to grow despite previously buying Digital, while HP was trying to grow internally, without much success. Both companies were still adjusting to acquisitions they have made in the past and both were adjusting to new leadership (Fiorina and Capellas). The merger deal also means that there are many overlaps in products, technologies, distribution channels, services, facilities and jobs. Employee morale is a threat to a successful merger as there has been numerous layoffs -15,000 employees. The claimed annual cost savings of about $2.5 billion dollars by the year 2004 amounts to only 3 % of the combined costs of both companies. Gartner Group research has indicated that the merged company has failed to do a good enough job of presenting the