Hewlett-Packard and Compaq Merger

Hewlett-Packard/Compaq Merger

In 2002, the (HP/Compaq) merger announcement was made by Hewlett-Packard CEO Carly Fiorina and Compaq head Michael D. Capellas. If in fact the merger goes through, it would be the largest merger in the computer industry history. Some may ask why this merger was so important to these companies. The truth of the matter is that both of these companies feel that this merger will benefit their company not only at the present time but in the future also. Along with a huge merger like this one, there are some pros and cons that affiliate with a huge merger like this one. According to a reference article these are some of the reasons why some may support the merger and some reasons why some may oppose the merger:

Why to support the merger:

• The new HP will become the market leader in servers, storage, management software, printing and imaging, and PCs, improving our ability to offer the end-to-end solutions customers demand.

• We will double our profitable and growing services business, enhance our R&D efforts, and extend our customer reach in 160 countries.

• We will achieve annual cost savings of $2.5 billion, adding $5 to $9 in present value to each HP share; and increase earnings per share by 13% during the first year following the merger.

• By improving profitability in enterprise computing systems, in PCs and access devices, and in IT services, we will have the financial strength to extend our successful imaging and printing franchise into new multi-billion dollar categories like digital imaging and digital publishing.

• The closer you look, the more you will see that the merger of HP and Compaq is the single best way to strengthen our businesses and improve our market position, deliver more of what our customers need, enhance opportunities for our employees, and increase the value of your investment.

Why to oppose the merger:

• Acquiring market share does not translate to leadership, i.e., demonstrated better business model, technology innovation or success at winning business from competitors.

• Admission of no new significant technology/capabilities added to HP's portfolio. Significant overlap creates cost synergies which are offset by revenue losses from rationalized products and services

• Large stock transactions statistically more risky. Upon announcement of the proposed merger, Moody's downgraded HP's debt rating and put it on negative watch, S&P has also put HP on negative outlook

• Bigger, but in an unattractive business, commodity computing. Hardware as diminishing economies of scale and HP and Compaq already has significant scale. HP is doubling its exposure