The HP-Compaq Merger Story

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Case Details:

Case Code : BSTR027
Case Length : 16 Pages
Period : 2001
Organization : Hewlett-Packard Company, Compaq Computer Corporation
Pub Date : 2002
Teaching Note : Available
Countries : USA
Industry : Computers

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

The Merger Rationale

After the merger announcement, HP issued a number of press releases in which it claimed that the new HP would become the undisputed worldwide leader in revenues for servers, access devices (PCs and hand-held devices), and imaging and printing. It would also have a leading revenue position globally for information technology services, storage and management software.

The merger was expected to yield savings projected to reach $2.5 billion annually by 2004. These savings were expected to come from

» Product rationalization;

» Efficiencies in administration, procurement, manufacturing and marketing; and

» Improved direct distribution of PCs and servers

According to a BusinessWeek report, HP opted for the merger, mainly because the size of the new entity would have enabled it to take advantage of volume sales...

The Problems

Doubts were raised about Fiorina's ability to execute the merger successfully. According to some analysts, Fiorina was responsible for the mess the merger had landed in. They contended that if she knew Hewlett was against the deal, she should have scrapped the merger talks, rather than risk a damaging proxy fight.

Charles M. Elson, director of the Center for Corporate Governance at the University of Delaware said, "You have to question her business judgment." HP was reportedly planning a lawsuit against Walter for improper corporate governance. With this, the company seemed all set for one of the biggest proxy fights in US corporate history. This would adversely affect its corporate image. Moreover, there were fears that Fiorina would be forced to step down as CEO in case the merger did not materialize. Analysts claimed that Fiorina's exit could worsen HP's financial position as the new CEO would have to figure out new strategies for the company. Meanwhile, with the Hewlett and Packard Foundation opposing the merger, HP employees began to loose faith in Fiorina's management...

Excerpts Contd... >>

Case Studies in Business Strategy Volume VI

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