Hewlett-Packard (hp) and Compaq

Hewlett-Packard (HP) and Compaq

Introduction:

The acquisition of Compaq by Hewlett-Packard was characterized by a variety of features and events that made the merger exceptionally interesting. HP bought Compaq in September 2002, by a $18 billion stock-swap, resulting in the largest take-over in the computing industry. HP's acquisition created an IT giant with annual sales of about $87 billion and current assets of over $55 billion, which changed the competitive landscape for the whole IT industry. However, the matter of great interest lies in the fact that this take-over was extremely controversial. The heirs of the founders of HP pledged their entire stock of 18 percent against the merger saying that it was not the “hp way”. The “hp way”, they claimed, "embraces a love of technology, a bond with the community, and deep respect for employees”. The merger, it was believed, would cause 15,000 lay-offs, which the heirs believed, was against HP’s corporate culture. Other significant issues were raised and the merger had to pass through competition authorities in the US and the EU. Furthermore, HP’s CEO Carly Fiorina was accused of bribing an investor, Deutsche Asset Management, a unit of Deutsche Bank, into voting for the deal. However, despite all there hurdles, the deal was finally closed on 4th September 2002, for $ 18 billion.

Company Description:

The following section briefly describes the two companies, HP and Compaq.

Hewlett-Packard (HP):

The Hewlett-Packard Company is the world’s largest information technology company, in terms of revenue. It is headquartered in Palo Alto, California and is renowned globally for it’s good quality computing, printing, digital imaging, software and services. HP is recognized as one of the symbolic founders of Silicon Valley. In Silicon Valley, it is believed, Hewlett-Packard is more than just a business. It is a “cultural icon”, promoting the laid-back and innovative nature of the technological world.

Compaq:

The Compaq Computer Corporation was an American personal computer company founded in 1982. At one point, it was the largest supplier of computing systems and was regarded as perhaps the most reputable manufacturer of mid-range hardware. But Compaq, however, over-diversified without developing a strong flow of revenue. Despite its dominance of the Personal computer market, Compaq heavily lost out because of the increase in competition. It, however, still remained in a reasonably good position because of its great innovations and the creation of its Global-Services sector, storage technology, and low-end technological goods.

The Computer Sector Explored:

One of the biggest strategies in the Personal Computers industry is imitation. When a firm has a new development, other firms rush to catch-up. The firms in this sector are usually large and have the capacity and capital to invest in many projects. In order to compete, small businesses need to expand. Internal expansion is not an option, since it is very time-consuming. Most businesses operate by buying out small competitors, or by simply forcing them out of the business.

Today, the computer sector in a majority of countries around the globe is dominated by a handful of companies, even though reportedly, there are no significant barriers to entry. These dominant corporations include IBM, DELL, HP, Fujitsu-Siemens, and Compaq, which put up with fierce price-wars in order to compete with one another. However, recent years before the merger, HP ceded business to companies such as IBM and Dell which found profitable niches in the technological marketplace. The HP-Compaq merger was, according to HP CEO Fiorina, carried out so that HP could catch up with the other companies. With the merger taking place, there would be significant changes in the computer sector and the new company formed would be the dominant one. Ironically, none of the competitive forces in the sector objected to the merger. When the EC decided to approve of the merger, it released a report saying, “A careful analysis of the merger, the largest ever in the information-technology sector, and of the competitive forces in the markets concerned has shown that HP would not be in a position to increase prices and that consumers would continue to benefit from sufficient choice and innovation,". They also added that the merged entity would continue to face strong competition from rivals such as, IBM, Dell and Fujitsu-Siemens, which together with the absence of significant barriers to entry and the practice of non-exclusive contractual relationships between retailers and