Hp and Compaq

Hewlett-Packard and Compaq are two major high tech companies both specializing in different areas. HP dominates the imaging and printing sector while Compaq's is known for commercial and consumer PCs. However both companies are experiencing trouble regarding market share, margins & performance. A merging proposition was put in place to bring the two companies together in order to secure long-term dominance. HP and Compaq both have different strengths, which together can produce a set of products and services to better serve customers at lower cost. Even if it is a "merger of equals" some questioning has been done whether the merging should take place or no because of the drop in share price. While, Carly Fiorina, CEO of HP, is emphasizing the benefits of this move, cofounder Hewlett is voting against it. Now, Macalester who manages a

$5 billion equity fund who owns 16 millions shares in HP is wondering & needs to make a decision whether merging will benefit HP and its shareholders.

One of the main data that has sparked concerns regarding the merging of HP and Compaq is the drop in share prices after the announcement on September 4th, 2001 going from $ 23.21 to $ 18.87. This is a good indicator and helps determine if the market is trusting and keen about their change. The valuing price of Compaq has also created conflict because it is believed that Compaq is overvalued at $ 25 billion and the company is worth approximately around $ 20 billion. Value the company by looking at the market value, by looking at competitors in the same industry and ensure that whatever premium is paid is worth it. The culture is also a big concern because even if the companies are similar in size and are from the same type of industry their culture is different which can make the process difficult and even unsuccessful. Then, the benefits whether strategic or financial that are identified by Fiorina are opposed by Hewlett and vice versa.

When comes time for mergers and acquisitions, its not only about the numbers. As learnt in the article Mergers and acquisitions (Satisfying shareholders) it is one way to go if you want to achieve substantial growth. However you need to be able to handle the costs, make sure you have the structure for the change. Evaluate the resemblance between companies, examine the cultures (mission, vision, values, goals) and see what complimentary benefits it will bring. Looking at past mergers is another way of valuating if the move is right or not. Dig into previous mergers within the technology industry to see how it was done, how long it took and whether it is a success or not, and why. Porter's five forces model can help HP and Compaq see if the merger will help them develop a superiority over their rivals. It will help them better understand the context of the technological industry in which the new firm will operate. In order to calculate the non-numerical, a SWOT analysis of each, HP and Compaq, and one of the two companies combined helps see what each can do for each other. Its covers all aspects outside and inside the company and helps you see if you can fill out the gaps. In the case of HP and Compaq, I would assess economic conditions; their merging announcement came at the same time as the 9/11 making NASDAQ drop 30 %. It's important to be alert that external factors such as terrorist attacks and environmental disasters can occur at any time and are humanly uncontrollable. They can have a major impact on the entire future of the business, therefore if HP and Compaq want to merge they need to make sure that synergies will materialize quick to survive hard times.

Last but not least its important for Macalester to consider the fact that Hewett and the Packard foundation both joint together have 18.6 % shares of HP. They could be refusing the deal because of personal interests, fear of equity dilution. Therefore, it is important to investigate the matter and ask for concrete reports from the opposing party to ensure that the best is done for all shareholders.

Once non-numerical