Hewlett-Packard Compaq

Merger

Presented By
Shashi patel
 What We Hoped to Learn
• Basic M&A criteria
• How the AHP process really works
• What happened with HP & Compaq and
how can we make it better in the future?
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
 Organizational Structure
COORDINATOR
Shannon Caputo

ALTERNATIVES CRITERIA EXPERTS WRITERS

Steve Piskadlo Phil Laspisa Evan Taylor Melissa Shah
Paul Ferraro Kathleen Cardelli -Presentations Jonathan Lai
Shawn Standen Chris Skorski Chris Skorski
Cassie Knox -Expert Choice

DOMAIN EXPERTS:
Dr. Stephen Andriole
Professor John Toppel
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
 Introduction to HP
• Well-respected systems vendor
• Smaller, but worthy competitor to IBM
• Competes mainly in the hardware
business with desktops and servers
• Lacking in the services business
• Undisputed leader with its line of PC
printers
 Introduction to Compaq
• Compaq sales leveled off with added
competition from Dell
• Compaq was best known for its personal
computer offerings
• After paying $5.4 billion to finance a merger
with Digital Equipment, Compaq eliminated
overlap by cutting thousands of jobs
worldwide
Carly Fiorina: Mike Capellas:
C.E.O. of Hewlett-Packard C.E.O. of Compaq
 Why Merge?
• To compete with IBM and other
companies
• The combined services business will have
65,000 services professionals vs.
100,000-plus for IBM
• Reduce Costs
• Bolster stock
 Merger Dates
• September 4, 2001 - HP and Compaq
announced a definitive merger agreement
to create an $87 billion global technology
leader.
• Eights months later on May 3, 2002 HP
and Compaq officially merge.
 What HP Has to Say on Why
• Because in one strategic move, we will become market leaders in servers, in storage
and in management software -- the essentials of business infrastructure, where
leadership really counts.
• Because we will greatly strengthen our depth and breadth of technology solutions at a
time when customers demand integrated, end-to-end solutions.
• Because more inventors and engineers will be
focused on solving the toughest technology
challenges of our times -- together.
• Because combined we will lead the march toward open standards more effectively
than either company could on its own.
• Because for our employees, customers and shareowners, we will be a stronger, more
vibrant HP, better conformed to lead and grow under market conditions that will
demand unprecedented integration, breadth and flexibility.
• Because in our industry, to stand still is to fall
behind.
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
 Main Criteria

• Ability to Improve
Financial Performance
• Ability to Evolve Ability to Improve Financial Conditions
Company Ability to Evolve Company

• Ability to Integrate Ability to Integrate

Financial Implications

4
Ability to Evolve Company
Ability to Integrate
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
 Alternatives
• Should they Merge? YES
• Should they Not Merge? NO
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Conclusion
Expert Choice
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Analysis & Recommendations
VII. Conclusion
 Results

NO 53.4%
70.0%
YES 46.6%
60.0%

50.0%

Based on the M&A 40.0%

criteria recommended 30.0%

by our domain experts, 20.0%
HP and Compaq should 10.0%
not have merged 0.0%
No Yes
 Sensitivity Analysis
To change the final outcome…

• Ability to Improve Financial Performance must

increase from 46.6 to 55.7 or a 19.5% change
• Ability to Evolve Company must decrease from
35.8 to 27.8 or a -22.3% change
• Ability to Integrate does not affect the decision

Overall, the final answer is not very sensitive to

any of the criteria
 Outline
I. Organizational Structure
II. Introduction
III. Criteria
IV. Alternatives
V. Hierarchy
VI. Analysis & Recommendations
VII. Conclusion
 What Happened?
• They did manage to save $3 billion with
the merger, successfully accomplishing
their main goal of reducing costs of $2.1
billion
• However, that came at the price of firing
44,000 employees over the last 3 years
– Original estimate: 15,000-17,000
 Conclusions
Based on the criteria the
HP and Compaq
merger should not have
gone through.
Problems with
integration as well as
evolving the company
can be forecasted
through the AHP
process we have
shown here today.
Mark Hurd: HP’s New C.E.O.

Mark Hurd, a former president at NCR corporation,

where he spent 25 years; was appointed C.E.O. and
president of Hewlett-Packard on March 29, 2005.
Thank You!

Questions?