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Case about HP and COmpaq merger.. After 6 years the merer is proven succesfull..
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HP – COMPAQ:
A FAILED MERGER?
Annadurai Anbarasu
CONTENTS
• Background HP & Compaq
• Why Merger ? Reasons?
• Does it make sense? Positives and Negatives of Merger
• Merger Strategy
• Challenges & SWOT Analysis
• Achieved Benefits for Shareholders and Customers
• Present status – Leadership across portfolio
• Conclusion
BACKGROUND – HP
1939 A new
company; HP inventsfirst product
1994Planet
Partners program launched
1999
Agilent Spin-off
1957Going Public
1966 HP enters computer industry;HP Labs opens
1st HP Computer
1972 Replacing the slide rule—HP
invents the pocket
calculator
1980 Our first PCs
1984 A print
revolution: HP
introduces both the
ThinkJet and the LaserJet
2002HP-
Compaq merger
2005Halo
Collaboration Studio
2008Commitment
to cloud computing
30s 00s90s80s70s60s50s
1959Going global
BACKGROUND – COMPAQ
1982 1984 1990 1997 1998 2000 2002
Rod, Jim and Bill Founded COMPAQ
Introduced Deskpro 286/386 based systems
Entered Server Market
Tandem Acquisition
DEC Acquisition
No 1 in PC worldwide
HP Acquired Compaq
WHY MERGER?HP and Compaq suffer similar risks of ‘Standing still’• Not able to respond to the changing customer requirements with smaller product mix
Increase competition with major competitors like IBM, DELL
Cut Costs by US$3 billion annually within 3 years & Increase earnings for shareholders
Merger will enhance business segments as individual and complimentary each other like supply chain
Face the challenge of a Shrinking market.
HP-COMPAQ MERGER - POSITIVES
Improved Economics and Innovation• Combined company creates economies of scale• Direct sales channel • More flexible distribution model
Complementary Leadership in Key Markets• Industry leading product line in entire server category• Industry leader in enterprise storage segment and
storage area networks• Broader portfolio of products and services
Strengthened Business Provides Critical Mass in Key Growth Market• 65,000 IT architects in 160 countries accelerates
growth• Better customer loyalty• Leading position in mission-critical services, and
multivendor supportFinancial Benefits• Estimated $2.5 billion in annual cost savings by mid-
2004• Would allow HP to increase investment in the imaging
and printing business
HP-COMPAQ MERGER - NEGATIVES
HP’s Business Portfolio Will Be Worse
• Increased exposure in unprofitable PC business• PC market was expected to shrink
The Integration Risk of the Proposed Merger is Substantial• No significant merger involving computer companies
had ever met expectations: ex. Compaq/Digital, Tandem..
• HP management had no experience with large mergerNegative Financial Impact on HP Stockholders• Dramatic drop in stock price after proposed merger
was announced• Wall Street predicted low estimates for future financial
performance
HP’s Strategic Position Will Not Materially Improve• Neither company had a profitable PC business model• Neither company had successfully transitioned to a
direct distribution model
MERGER TRANSACTION SUMMARYItem Proposal
Structure Stock-for-Stock merger
Exchange Ratio 0.6325 of an HP share per Compaq share
Current Value Approx. US 25 Billion
Ownership Hp Shareholders 64%; Compaq shareholders 36%
Accounting Purchase
Expected Closing First half of 2002
KeyFigures
FY02
FY02 – in US$ billion HP Compaq Combined
Revenue 47.0 40.4 87.4
Assets 32.4 23.9 56.4
Operating earnings 2.1 1.9 3.9
Market Capitalization 45.11 20.99 66.10
HP & COMPAQ
WHAT IS STRATEGY?
MARKET REACTION
• US $ 13 Billion lost in first 2 days (HP & COMPAQ combined)
• 17% loss in next 2 weeks
• At the same time the competitors like:
• DELL went up by 80%• Lexmark went up by 60%
PRE-MERGER BCG MATRIX
Storage
Laptops & Desktops
Servers
On-line storage and IT services
Pocket computers (PDA)
Pocket computers (PDA)
Laptops & Desktops
Servers
Printers, Printer supplies
Ind
ust
ry G
row
th
Rate
Hig
hLo
w
Relative Market shareLow High
Hig
hLo
w
POST-MERGER BCG MATRIX
Software
PC’s/Desktops
Servers
Printers, Printer supplies
Storage
Laptop/Notebooks
Services
Ind
ust
ry G
row
th
Rate
Hig
hLo
w
Relative Market shareLow High
CHALLENGESCompetition : As HP and Compaq smooth out their merger, the industry – and their competitors – move on to bigger and better things
Blending in : The merged company needs to be a “hybrid enterprise
Meshing cultures : INCREASE MORALE & AVOIDING CULTURE CLASHES HP: “deliberative, thorough decision-making”Compaq: “fast decision-making and marketing”
CHOOSING PRODUCTS
• Fix the PC business• Optimize the server
business• Enhance the service &
consulting
Convincing customers: Customers want a clear “migration path,” especial with regards to discontinued offerings
Cost: Cut Costs while monitoring revenues (about 3B)
Internal IT: Integrating internal IT applications
SWOT ANALYSIS – POST MERGERTh
reats
Op
port
un
itie
s
Strengths Weaknesses
Confront Avoid
Exploit Search
Competitive EnvironmentEmployee Morale
Economic Downturn
Organizational Culture conflict
Innovation
Integration
Customer Loyalty
Cost Saving
Market Share
Overlapping ManagementOverlapping product lines
ACHIEVED BENEFITS FOR CUSTOMERSHP 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 –
Enhanced supply and demand
visibility
Elimination of non-value-added steps, such as administration, and costs
Direct selling capabilities
Broader product portfolio
ACHIEVED BENEFITS FOR SHARE HOLDERS
In mid-July 2007, Five years after the merger announcement, –
Shareholder returns were up 46 percent.
Over the same period:The Standard & Poor's IT index had sunk 9 percent
Competitors like:IBM was down 23 percentDell was up only 2 percent
Worldwide market share data for calendar Q4 2010LEADERSHIP ACROSS THE PORTFOLIO
MARKET SHARE POSITION
Blade Servers 53.4% #1x86 based Servers 38.5% #1Unix + Linux + Windows Servers 34.2% #1Branded Tape Drives 38.0% #1Automated Software Quality 39.0% #1Distributed System Management Software 13.6% #1
Inkjet printers 47.7% #1Laser printers 36.2% #1Workstations 44.5% #1Notebooks 20.2% #1Desktops 18.3% #1Thin Clients 28.5% #1
MARKET SHARE POSITION
IT Asset Management Software 18.3% #2IT Services 6.0% #2Outsourcing 8.6% #2Ethernet Switches 10.6% #2
CONCLUSION"The merger accomplished what HP and Compaq set out to do
in the first place, providing the critical mass and reach needed to ensure a long-term role in an industry undergoing
a fundamental transition,“ "This deal enabled the merged company to grow revenue and
profits in an increasingly competitive marketplace.“Jean S. Bozman, VP–Research, International Data Corporation. 8th Nov 2006
Many predicted HP+Compaq would be 1 + 1 = 1
Some predicted HP+Compaq would be 1 + 1 = 2
Very few predicted the reality HP+Compaq would
be 1 + 1 = 3A SUCCESSFUL MERGER
Q & A