Greed and Self

Greed and self- interest is on display in many of the mergers that we have analyzed – HP, Pabst – and the excerpts from the movie that we watched (Barbarians at the Gate). Jensen also talks about Greed in his famous Folklore essay on Takeovers (in your HBS packet). Is greed a good or bad force motivating M & A? Explain how the greed or the self- interest of people involved in the HP merger may not have created value for the combined merged company. Be specific in terms of value and value creation / destruction.

I think the geed or self-interest is a good force to motivate M&A. In Oliver Stone’s Wall Street essay, the financier Gordon Gecko (played by Michael Douglas) summarizes the ethical philosophy of the raiders with the famous words: “Greed is good.” The reason that HP had to merge with Compaq was a good example to explain this word.

Carly Fiorina became the CEO of HP in the year of 1999. Even though stocks gradually rose to a peak of $74.48 from their value of $54.43 at the day before she had joined HP, the company was still inefficient to maintain its growth. This was because it could not meet the targets due to a failure of both company and industry. As a result, by September 2001, HP’s stock value had fallen to less than half of its level when Fiorina was hired. Consequently, she was in danger of losing her job. This meant that improvement in the internal strategies of the company was not going to be sufficient for the company's success. Ultimately, the company had to certainly plan out something different. So, it was decided that the company would be acquiring Compaq.

Compaq was focused on a business segment (servers/personal computers) which has a lower profit margin than the imaging and printing business segments. Fiorina claimed that a merged HP and Compaq would be stronger due to the ability to service more customers and would be #1 or #2 in over 5 markets where HP was only #5 or 6 currently. She also claimed that the additional...