Essay on Analysis of Merger Between Hp and Compaq

2688 Words Dec 31st, 2012 11 Pages
Abstract 1
Key words: merger HP Compaq synergy 1
1.Introduction of the case 1
1.1 The Hewlett-Packard Company 1
1.2 The Compaq Company 2
1.3 Motives 2
1.3.1 Strategic motives 2
1.3.2 Financial motives 3
Operating Synergy (mainly from cost savings) 3
Contribution Margin 3
2.HP’s Concerns 4
2.1 Business portfolio 4
2.2 Strategic problems 4
2.3 Financial impacts 4
2.4 Integration risk 5
3.Analysis and solutions 5
3.1 Stand-alone valuation 5
3.2 Synergy valuation 6
3.3 Premium valuation 8
3.4 Valuation range 9
4.Conclusion 9
Proscripts 10
Appendix 10
References 10

Abstract Hewlett-Packard Company is asking its shareholders to vote for its decision to acquire Compaq Company to achieve strategic benefits as
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So Hewlett, son of HP founder and a member of HP’s board of directors, began lobbing against the merger. Following are his concerns.

2.1 Business portfolio HP Company has always been very successful in its printing and imaging business, taking up the biggest share in the market. But as Compaq Company does not have these businesses, it may dilute the interest in imaging and printing business, thus worsening the business portfolio. In addition, since the PC business has lower margin, growth and return on invested capital, larger PC position will pose risk of cash drain. And this is contrary to the company’s goal of moving to higher margin and less commodity-like businesses.

2.2 Strategic problems This merger was initially intended to strengthen HP’s strategic position in the whole market and becoming a market leader that can conquer IBM. But, there is a fear that the market position of HP will reman weak in key attractive segments and stuck in an awkward situation between Dell at the low end and IBM at the high end. The previous prosperous businesses like imaging and printing may go down while there is not much improvement in the PC business. That kind of dilemma is not something the shareholders want to see.

2.3 Financial impacts After the announcement of the merger of HP and Compaq, to

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