The HP-Compaq Merger Story

The merged entity was to have operations in more than 160 countries with over 145,000 employees, offering the industry's most complete set of products and services. Surprisingly, the stock markets reacted negatively to the announcement with shares of both companies collapsing - in just two days, HP and Compaq share prices declined by 21.5% and 15.7% respectively (See Exhibit V and VI). Together the pair lost $13 billion in market capitalization. In spite of this, HP's Chairman and CEO, Carly Fiorina (Fiorina) was confident about the merger. In an interview² she said, "This is a very tight agreement. You don't make this kind of move and judge its success by the short-term stock price."

This is a great opportunity for us, IBM, and others to go after market share." Dell CEO Michael S. Dell added that the merger would only confuse customers and benefit HP's competitors. On November 6, 2001, the merger faced another hurdle in the form of Walter B. Hewlett (Walter), the eldest son of Hewlett-Packard co-founder William R. Hewlett. Though Walter had initially approved the bid, he decided to use his 5.2% stake to oppose the merger. Soon, another relative of HP's founders, David Woodley Packard (David) and The David and Lucile Packard Foundation, HP's largest shareholder, with a 10.4% stake, also decided to oppose the merger. By January 2002, with so much going against the merger, industry observers seemed to have written it off - even though the shareholder meeting for the proposal's approval was yet to be held.