M&a (Hp-Compaq Deal)

One of the world’s largest corporate IT mergers was proposed in September 2001, when an announcement was made by chief executive of Hewlett-Packard (HP), Carly Fiorina, about joining with Compaq Computer to form a large consolidation via an all stock purchase worth $25 billion. Many different factors should be considered to evaluate the transaction, including the industry, the outlook, and benefits of the deal as well as the risks that come with it. A recommendation will be provided towards the end, supporting the fact that Hewlett-Packard and Compaq Computer should not engage in this merger.

Industry Analysis in 2001 and Outlook

This industry had various major players such as IBM and Dell along with HP and Compaq, competing to stay strong in a changing market environment. Based on WSJ from 9/4/2001, there was a slowdown in the global personal computers (PC) market segment. Firms were moving towards the service business to stay competitive. The PC industry faced extremely “cut-throat” price wars, which were expected to get more intense. As mentioned in of the articles, “Personal computers are commodity products and in that kind of business price is everything”. Companies fought to stay in the fore-front of the market, and maintain their market share, instead of working towards improving profitability or cost savings, which get passed on to customers. Products were developed and introduced in the marketplace frequently. This deal also came through at a time when the world-wide economy was facing a slow-down, causing major customers to spend less. There was a market research conducted that expected the US PC shipments to shrink 10% in 2001, and world-wide shipments to decline for the first time in 15 years. Due to the industry-wide decline for computer systems that had impacted many companies including Compaq, there were doubts that this deal would be successful. HP and Compaq, during this time, experienced a fall in profits by higher than 80% in...