HP-Compaq - A Failed Merger?

            
 
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Case Details:

Case Code : BSTR202
Case Length : 20 Pages
Pages Period : 1999-2005
Organization : HP, Compaq
Pub Date : 2006
Teaching Note : Available
Countries : US
Industry : IT - Hardware

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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EXCERPTS

The Rationale for the Merger

In the late 1990s, the PC industry slipped into its worst-ever recessionary phase, resulting in losses of US$ 1.2 billion and 31,000 layoffs by September 2001. According to analysts, with the computer industry commoditizing and consolidating very fast, mergers had become inevitable.

The HP-Compaq merger thus did not come as a major surprise to industry observers. The details of the merger were revealed in an HP press release issued soon after the merger was announced. The new company was to retain the HP name and would have revenues of US$ 87.4 billion - almost equivalent to the industry leader IBM (US$ 88.396 billion in 2000).

Under the terms of the deal, Compaq shareholders would receive 0.6325 share of the new company for each share of Compaq. HP shareholders would own approximately 64% and Compaq shareholders 36% of the merged company. Fiorina was to remain Chairman and CEO of the new company while Capellas was to become the President...

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The Merger Integration

The new HP developed a white paper giving complete details of its post-merger product strategy. The HP and Compaq brand names were retained for desktop PCs and notebooks for both consumers and commercial segments. The merged entity supported Compaq's brand name for its servers while it continued with HP for workstations. The electronic shopping sites of both the companies were also integrated.

To make the merger work, the new HP initially focused on two areas - avoiding culture clashes internally and reducing any problems to the customers. The company devoted a significant amount of time in planning to minimize any instance of culture clashes that usually happened in such mega-mergers. The task of ensuring this was given to Susan Bowick, HP's Senior VP of HR. She put all employees through a training workshop named as 'Fast Start,' designed to explain the merged entity's new organizational structure and allow employees overcome concerns about their new co-workers. HP also made efforts to strengthen its image as a single unified company...

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