HP and Compaq Merger

The failure of the merger between two leading competitors in the global computer industry, Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) failed as the synergies identified prior to the merger did not materialize.

HP bought Compaq for US$ 24 billion in stock. This was the largest ever deal in the history of the computer industry. The deal meant combined operations in more than 160 countries and more than 145,000 employees. HP-Compaq would offer the most complete set of products and services in the computer industry.
The motivation behind a HP-Compaq merger (whether it made economic sense) and the problems encountered in merging operations is an interesting discussion as the stock prices of both HP and Compaq fell within two days of the merger announcement. An estimated 13 billion dollars was lost (in terms of market capitalization) in this time frame.

Shares fell further as industry analysts failed to understand the benefits HP would derive by acquiring Compaq. HP was a market leader in the high margin printer’s business and Compaq, a low-margin personal computer (PC) manufacturer. Moreover, established players like direct marketer, Dell and leading IT service consulting company like IBM would give fierce competition even if economies of scale were to be achieved.

With the stock price of HP’s shares stabilising at a level much below than before the merger and the PC & other hardware businesses not making much profits, the merger was ruled a failure. Industry experts felt that HP’s printer business should be spun off into a separate entity.
Merger Challenges:

Product line integration: This requires discontinuing some products (some loss in revenue) thereby rationalizing the product line.

Reorganization: In the computer industry this has always been a failure.

Cultural change challenges: HP’s culture is largely based on engineering and compromise, while Compaq had a hard-charging sales culture.

Some Facts:
HP was founded by Stanford engineers Bill Hewlett and David Packard

HP was started in California in 1938 as an electronic instruments company.

According to 2003 figures, HP revenues from imaging and printing systems accounted for 31% which was more than seventy percent of total operating profits.

Keywords: Post merger integration, merger and cultural challenges, HP, Compaq, Carly Fiorna, computer industry, printers, merger & consolidation, merger and acquisitions, change management