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Mergers, Acquisitions and Strategic Alliances

HP-Compaq (A)

Submitted to:

Dr. Rajesh Srinivas Updhyay IIM Kozhikode

Submitted by: Sreejith S. Nair ePGP-01-036


Executive Education Programme in Marketing ePGP-01

Indian Institute of Management Kozhikode

Q1: Why should HP acquire firms? Is Industry structure attractive? What are trends affecting Industry Structure? Ans: HP was stagnating as an Innovative company with only IGP (Imaging and Printing group) being the market leader and all other businesses not in first 3 in terms of size. So HP had to build strong complimentary business lines and hence Compaq merger made business sense Home, Business PCs and Unix servers posed highest growth in the PC and allied segments and hence the Industry was attractive. HP was leader in High end business servers where as Compaq was leader in laptops and UNIX servers. Q2: What would a SWOT analysis reveal? Ans: Strengths o Size and high revenue post merger o Stable growth with many high profitable business o Cost Savings due to elimination of redundant functions across RD, Marketing and Supply Chain Weakness o Overlapping businesses and product lines making merger difficult o Lack of clear line of management differentiation o Cultural difference in the organizations Opportunities o High degree of Innovation o Increased market share due to integration and increase of services scope o Increased customer access and loyalty as a solution provider Threats


o Low employee morale post merger o Highly competitive environment; Single mis-step could cost the combined entity quite dearly Q3: Was the merger strategy sound? Ans: Yes. The Strategy was sound for the following reasons Increased market benefits o One stop shop entity in PC and allied business created o Increased service capability o Scale advantages due to sheer size Increased Operational benefits o Complementary RD capabilities making merger easy o Work force reduction, optimization in marketing, supply chain giving substantial operational savings Increased financial benefits o Increase in revenue and profit o Combined entity in a good position to invest in more strategic areas Q4: What is the value of the projected Synergies? Ans: 2.5 Billion USD in 2004; NPV of Cost savings to be UDS 5-9 per share Q5: What is the appropriate valuation range for Compaq? Ans: The market valuation of Compaq which is approx. 20 Billion USD is the minimum starting range for the valuation. So HPs offer of approx 24 Billion an appropriate valuation