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The following is a brief report of the two companies:
Hp
It all began in the year 1938 when two electrical engineering graduates from Stanford University called William Hewlett and David Packard started their company in a stable in Palo Alto. In a year's time, the partnership called Hewlett-Packard was made and by the year 1947, Hp was incorporated. The company has been prospering ever since as its profits grew from five and half million dollars in 1951 to about 3 billion dollars in 1981. The pace of growth knew no bounds as Hp's net earnings went up to 42 billion dollars in 1997. Beginning with manufacturing audio oscillators, the company made its first computer in the year 1966 and it was by 1972 that it introduced the idea of personal computing by a calculator first which was additional developed into a personal computer in the year 1980. The company is also known for the laser-printer which it introduced in the year 1985.
Compaq
The company is good known as Compaq Computer Corporation. This was company that started itself as a personal computer company in the year 1982. It had the charm of being called the largest manufacturers of personal computing devices worldwide. The company was formed by two senior managers at Texas Instruments. The name of the company had come from-"Compatibility and Quality". The company introduced its first computer in the year 1983 after at a price of 2995 dollars. In spite of being portable, the question with the computer was that it seemed to be a suitcase. Nevertheless, there were huge industrial benefits from the computer as it sold more than 53,000 units in the first year with a earnings generation of 111 million dollars.
Reasons for the Merger
A very simple demand that arises here is that, if Hp was progressing at such a great pace, what was the reason that the company had to merge with Compaq? Carly Fiorina, who became the Ceo of Hp in the year 1999, had a key role to play in the merger that took place in 2001. She was the first woman to have taken over as Ceo of such a big company and the first outsider too. She worked very efficiently as she travelled more than 250,000 miles in the first year as a Ceo. Her basic aim was to modernize the culture of doing of Hp. She laid great emphasis on the profitable sides of the business. This shows that she was very extravagant in her advent as a Ceo. In spite of the growth in the store value of Hp's share from 54.43 to 74.48 dollars, the company was still inefficient. This was because it could not meet the targets due to a failure of both company and industry. Hp was forced to cut down on jobs and also be eluded from the privilege of having Price Water House Cooper's to take care of its audit. So, even the job of Fiorina was under threat. This meant that revising in the internal strategies of the company was not going to be adequate for the company's success. Ultimately, the company had to undoubtedly plan out something different. So, it was decided that the company would be acquiring Compaq in a stock transaction whose net worth was 25 billion dollars. Initially, this merger was not planned. It started with a telephonic conversation between Ceo Hp, Fiorina and Chairman and Ceo Compaq, Capellas. The idea behind the conversation was to discuss on a licensing deal but it prolonged as a discussion on contentious strategy and finally a merger. It took two months for additional studies and by September, 2001, the boards of the two companies popular ,favorite of the merger. In spite of the decision coming from the Ceo of Hp, the merger was strongly opposed in the company. The two Ceos believed that the only way to fight the growing competition in terms of prices was to have a merger. But the investors and the other stakeholders idea that the company would never be able to have the loyalty of the Compaq customers, if products are sold with an Hp logo on it. Other than this, there were questions on the synchronization of the organization's members with each other. This was because of the convert in the organization culture as well. Even though these were supposed to serious problems with respect to the merger, the Ceo of Hp, Fiorina justified the same with the fact that the merger would take off one serious competitor in the over-supplied Pc store of those days. She said that the store share of the company is bound to growth with the merger and also the working unit would double. (Hoopes, 2001)
Advantages of the Merger
Even though it seemed to be advantageous to very few citizen in the beginning, it was the strong determination of Fiorina that she was able to stand by her decision. Wall road and all her investors had gone against the company lampooning her ideas with the saying that she has made 1+1=1.5 by her extravagant ways of expansion. Fiorina had put it this way that after the company's merger, not only would it have a larger share in the store but also the units of output would double. This would mean that the company would grow tremendously in volume. Her dream of contentious with the giants in the field, Ibm would also come true. She was of the view that much of the redundancy in the two companies would decrease as the internal costs on promotion, marketing and shipping would come down with the merger. This would produce the slightest harm to the variety of revenue. She used the ideas of contentious positioning to account for her plans of the merger. She said that the merger is based on the ideologies of consolidation and not on diversification. She could also defend allegations against the convert in the Hp was. She was of the view that the Hp has always encouraged changes as it is about innovating and taking bold steps. She said that the company requires being consistent with creativity, revising and modification. This merger had the capability of providing exactly the same. (Mergers and Acquisitions, 2010)
Advantages to the Shareholders
The following are the ways in which the company can be advantageous to its shareholders:
Unique Opportunity: The position of the company is bound to good with the merger. The reason for the same was that now the value creation would be fresh, leadership qualities would improve, capabilities would enhance and so would the sales and also the company's strategic differentiation would be good than the existing competitors. Other than this, one can also way the capabilities of Compaq directly hence reducing the cost buildings in becoming the largest in the industry. Finally, one could also see an chance in reinvesting.
Stronger Company: The profitability is bound to growth in the enterprise, way and services sectors in high degrees. The company can also see a good chance in its research and development. The financial conditions of the company with respect to its Ebit and net cash are also on the incremental side.
Compelling Economics: The thinkable, accumulation in Iip gains would be 13% in the first financial year. The company could also escort a good segmentation of the store to forecast its revenues generation. This would go to as much as 2 and a half billion dollars of yearly synergy.
Ability to Execute: As there would be integration in the planning procedures of the company, the chances of value creation would also be huge. Along with that the touch of leading a diversified laborer buildings would also be there. (Hp to buy Compaq, 2001)
Opposition to the Merger
In fact, it was only Ceo Fiorina who was in favor of going with the merger. This is a practical application of agency question that arises because of convert in financial strategies of the company owners and the management. Fiorina was clear to lose her job if the merger didn't take effect. The reason was that Hp was not able to meet the demand targets under her leadership. But the owners were against the merger due to the following beliefs of the owners:
The new portfolio would be less preferable: The position of the company as a larger victualer of Pcs would undoubtedly growth the amount of risk and involve a lot of venture as well. Other leading reason in this context is that Hp's prime interest in Imaging and Printing would not exist anymore as a corollary diluting the interest of the stockholders. In fact the company owners also feel that there would be a lower margin and Roi (return on investment).
Strategic Problems would remain Unsolved: The store position in high-end servers and services would still remain in spite of the merger. The price of the Pcs would not come down to be affordable by all. The critical convert in material for imaging and printing also would not exist. This merger would have no corollary on the low end servers as Dell would be there in the lead and high-end servers whether where Ibm and Sun would have the lead. The company would also be eluded from the advantages of outsourcing because of the surplus labor it would have. So, the capability is not guaranteed to improve. Finally, the merger would not equal Ibm under any condition as idea by Fiorina.
Huge Integrated Risks: There have been no examples of success with such huge mergers. Generally when the store doesn't preserve such mergers, don't do well as is the case here. When Hp could not conduct its organization properly, integration would only add on to the difficulties. It would be even more difficult under the conditions because of the existing competitions between Hp and Compaq. Being prone to such risky conditions, the company would also have to vary its costs causing greater trouble for the owner. The biggest factor of all is that to concentrate the culture existing in the two companies would be a very difficult job.
Financial Impact: This is mostly because the store reactions are negative. On the other hand, the position of Compaq was totally separate from Hp. As the company would have a greater contribution to the earnings and Hp being diluted at the same time, the problems are bound to develop. This would mean that drawing money from the equity store would also be difficult for Hp. In fact this might not seem to be a very profitable merger for Compaq as well in the future.
The basic question that the owners of the company had with this merger was that it would hamper the core values of Hp. They felt that it is good to preserve wealth rather than to risk it with extravagant risk taking. This high risk profile of Fiorina was a puny unacceptable for the owners of the company in light of its prospects.
So, as far as this merger between Hp and Compaq is concerned, on side there was this strong determination of the Ceo, Fiorina and on the other side was the strong opposition from the company owners. This opposition prolonged from the store along with all the investors of the company. So, this practical agency question was very preponderant inspecting the fact that it contained two of the most great hardware companies in the world. There were a amount of options like convert Management, Economic wise Management, and Organizational supervision which could be considered to analyze the issue. But this case study can be solved best by a strategy wise analysis. (Hp-Compaq merger faces stiff opposition from shareholders stock prices fall again, 2001)
Strategic determination of the Case
Positive Aspects
A Ceo will always think such a merger to be an chance to take a contentious benefit over its rivals like Ibm as in this case and also be of some interest to the shareholders as well. The following are the strategies that are associated to this merger between Hp and Compaq:
* Having an eye over shareholders' value: If one sees this merger from the eyes of Fiorina, it would be clear that the shareholders have a lot to gain from it. The reason for the same is the increment in the control of the market. So, even of the conditions were not favorable from the financial perspective, this truth would undoubtedly make a lot of profits for the company in the future.
* improvement of Markets: Two organizations get complex in mergers as they want to strengthen their store both on the domestic and the international level. Integration with a domestic company doesn't need much exertion but when a company merges internationally as in this case, a involving task is on head. A acceptable situation scanning is critical before putting your feet in International arena. Here, the competitor for Hp was Compaq to a large degree, so this merger undoubtedly required a lot of thinking. Organizations merge with the international companies in order to set up their brands first and let citizen know about what they are capable of and also what they eye in the future. This is the reason that after this merger the products of Compaq would also have the logo of Hp. Once the store is well-known, then Hp would not have to suffer the branding created by Compaq. They would be able to draw all the customers of Compaq as well.
* Propagated Efficiencies: Any company by acquiring Other or by merging makes an exertion to add to its efficiencies by increasing the operations and also having control over it to the maximum extent. We can see that Hp would now have an increased set of employees. The only factor is that they would have to be controlled properly as they are of separate organizational cultures. (Benefits of Mergers:, 2010)
* Allowances to use more resources: An improvised organization of monetary resources, intellectual capital and raw materials offers a contentious benefit to the companies. When such companies merge, many of the intellects come together and work towards a base mission to excel with financial profits to the company. Here, one can't deny the fact that even the top brains of Compaq would be taking part in forming the strategies of the company in the future.
* supervision of risks: If we particularly take an example of this case, Hp and Compaq entering into this merger can decrease the risk level they would have diversified company opportunities. The options for manufacture choice of the furnish chain also increase. Now even though Hp is a pioneer in inkjet orienting, it would not have to use the stock based factory layout which is more expensive. It can conduct the risk of taking process based factory layout and make things cheaper. Manufacturing and Processing can now be done in various nations according to the cost viability as the major issue.
* Listing potential: Even though Wall road and all the investors of the company are against the merger, when Ipos are offered, a improvement will certainly be there because of the victorious earnings and turnover value which Hp would be manufacture with this merger.
* critical political regulations: When organizations take a leap into other nations, they need to think the separate regulations in that country which administer the policies of the place. As Hp is already a pioneer in all the countries that Compaq used to do its business, this would not be of much difficulty for the company. The company would only need to make clear minor regulations with the political parties of some countries where Compaq was victorious more than Hp.
* good Opportunities: When companies merge with Other company, later they can put up for sale as per as the needs of the company. This could also be done partially. If Hp feels that it would not need much of warehouse space it can sell the same at increased profits. It depends on whether the company would now be regarded a s a make to stock or a make to order company.
* Extra products, services, and facilities: Services get copyrights which enhances the level of trade. additional warehouse services and distribution channels offer company values. Here Hp can use all such values integrated with Compaq so as to growth its prospects. (Berry, 2010)
Negative Aspects
There are a amount of mergers and acquisitions that fail before they undoubtedly start to function. In the critical phase of implementation itself, the companies come to know that it would not be useful if they continue as a merger. This can occur in this merger between Hp and Compaq due to the following reasons.
Conversations are not implemented: Because of unlike cultures, ambitions and risk profiles; many of the deals are cancelled. As per as the reactions of the owners of Hp, this seems to be very likely. So, motivation amongst the employees is an very leading notice in this case. This requires an extra exertion by the Ceo, Fiorina. This could also help her voice her position in the company.
Legal Contemplations: Anti-competitive deals are often puny by the rules presiding over the competition rules in a country. This leads to out of order functioning of one company and they try to detach from each other. A lot of unnecessary marketing failures get attached to these conditions. If this happens in this case, then all that money which went in publicizing the venture would go to be a waste. Moreover, even more would be required to re-promote as a single entity. Even the containers where the whole catalogue from Compaq had the logo of Hp would have to be re-done, thus hampering the finance even further. (Broc Romanek, 2002)
Compatibility problems: Every company runs on separate platforms and ideas. Compatibility problems often occur because of synchronization issues. In It companies such as Hp and Compaq, many problems can take place because both the companies have worked on separate strategies in the past. Now, it might not seem critical for the Hp supervision to make changes as per as those from Compaq. Thus such problems have come to be of many concern these days.
Fiscal catastrophes: Both the companies after signing an deal hope to have some return on the money they have put in to make this merger happen and also desire profitability and turnovers. If due to any reason, they are not able to attain that position, then they institute a abhorrence sense towards each other and also start charging each other for the failure.
Human resource Differences: Problems as a corollary of cultural dissimilarities, hospitality and hostility issues, and also other behavior associated issues can take apart the origin of the merger.
Lack of Determination: When organizations involve, they have plans in their minds, they have a foresight set; but because of a variety of problems as mentioned above, improvement of the combined company to achieve its mission is delayed. Merged companies set the goal and when the goal is not fulfilled, due to some faults of any of the two; then both of them institute a clear degree of hatred for each other. Also clashes can occur because of bias reactions. (William, 2008)
Risk supervision failure: companies that are complex in mergers and acquisitions, come to be over clear that they are going to make a profit out of this decision. This can be seen as with Fiorina. In fact she can fight the whole world for that. When their self-confidence turns out into over-confidence then they fail. adequate risk supervision methods should be adopted which would take care of the effects if the decision takes a downturn. These risk policies should rule fiscal, productions, marketing, manufacturing, and catalogue and Hr risks associated with the merger.
Strategic Sharing
Marketing
Hp and Compaq would now have base channels as far as their buying is concerned. So, the benefits in this concern is that even for those materials which were initially of high cost for Hp would now be ready at a cheaper price. The end users are also likely to increase. Now, the company can re frame its contentious strategy where the many concern can be given to all time rivals Ibm. The advantages of this merger in the field of marketing can be seen in the case of shared branding, sales and service. Even the distribution policy is likely to be enhanced with Compaq playing its part. Now, the company can look transmit to cross selling, subsidization and also a reduced cost.
Operations
The leading benefit in this area is that in the location of raw material. Even the processing style would be same manufacture the products and services synchronized with the ideas and also in manufacture a decent operational strategy. As the philosophical and mechanical control would also be in common, the operational strategy would now be to come to be the top most in the market. In this respect, the two companies would now have co-production, institute and also location of staff. So, the operational strategy of Hp would now be to use the process based factory layout and function with the mentioned shared values.
Technology
The technical strategy of the company can also be designed in base now. There is a disadvantage from the perspective of the differentiation that Hp had in the field of inkjet printers but the advantages are also plentiful. With a base stock and process technology, the technological strategy of the merged company would promote very prudent functioning. This can be done straight through a base research and improvement and designing team.
Buying
The buying strategy of the company would also corollary a base mechanism. Here, the raw materials, machinery, and power would be base hence decreasing the cost once again. This can be done straight through a centralized mechanism with a lead purchaser retention base policies in mind. Now Hp would have to think with a similar attitude for both inkjet printers as well as personal computers. This is because the parameters for manufacturing would also run on equal grounds.
Infrastructure
This is the most leading part of the strategies that would be made after the merger. The companies would have base shareholders for providing the critical infrastructure. The capital source, supervision style, and legislation would also be in common. So, the infrastructure strategies would have to take these things into account. This can be done by having a base accounting system. Hp does have an choice to have a detach accounting law for the products that it manufactures but that would only arouse an internal competition. So, the infrastructural benefits can be made straight through a base accounting, legal and human resource system. This would ensure that the venture relations of the company would improve. None of the Compaq investors would hesitate in manufacture an venture if Hp follows a base strategy.
Hp would now have to ensure Other fact that with this merger they would be able to prove competitors to the gift target and those of competitors like Ibm as well. Even the operations and the output store needs to be above what exists at present. The company needs to ensure that the corporate strategy that it uses is efficient adequate to help such a future. The degree of diversification needs to be managed thoroughly as well. This is because; the products from the two companies have performed exceptionally well in the past. So, the most optimum degree of diversification is required under the context so that the company is able to meet the demands of the customers. This has been challenged by the owners of Hp but needs to be carried by the Ceo Fiorina. (Bhattacharya, 2010)
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