Brief Description
The following is a brief description of the two companies:
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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 carport 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 revenue 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 supplementary advanced 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 better 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 problem 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 revenue generation of 111 million dollars.
Reasons for the Merger
A very easy examine that arises here is that, if Hp was progressing at such a gigantic pace, what was the surmise 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 update the culture of carrying out of Hp. She laid great emphasis on the profitable sides of the business. This shows that she was very extravagant in her coming as a Ceo. In spite of the growth in the shop 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 revision in the internal strategies of the company was not going to be sufficient for the company's success. Ultimately, the company had to of course 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 bargain but it continued as a seminar on competing strategy and finally a merger. It took two months for supplementary studies and by September, 2001, the boards of the two associates stylish of the merger. In spite of the decision arrival 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 change in the club 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 shop of those days. She said that the shop 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 people 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 shop but also the units of output would double. This would mean that the company would grow tremendously in volume. Her dream of competing with the giants in the field, Ibm would also come true. She was of the view that much of the redundancy in the two associates would decrease as the internal costs on promotion, marketing and shipping would come down with the merger. This would furnish the slightest harm to the variety of revenue. She used the ideas of competing positioning to interpret 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 change in the Hp was. She was of the view that the Hp has all the time encouraged changes as it is about innovating and taking bold steps. She said that the company requires being consistent with creativity, revision and modification. This merger had the ability 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 better with the merger. The surmise for the same was that now the value creation would be fresh, leadership qualities would improve, capabilities would heighten and so would the sales and also the company's strategic differentiation would be better 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 opportunity 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 better opportunity 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 expected accumulation in Iip gains would be 13% in the first financial year. The company could also escort a better segmentation of the shop to forecast its revenues generation. This would go to as much as 2 and a half billion dollars of every year 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 palpate of foremost a diversified employee 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 department problem that arises because of change in financial strategies of the company owners and the management. Fiorina was confident to lose her job if the merger didn't take effect. The surmise was that Hp was not able to meet the examine 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 supplier of Pcs would of course growth the amount of risk and involve a lot of investment as well. Other foremost surmise in this context is that Hp's prime interest in Imaging and Printing would not exist anymore as a succeed 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 shop 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 principal change in material for imaging and printing also would not exist. This merger would have no succeed 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 ability is not guaranteed to improve. Finally, the merger would not equal Ibm under any health as idea by Fiorina.
Huge Integrated Risks: There have been no examples of success with such huge mergers. Ordinarily when the shop doesn't withhold such mergers, don't do well as is the case here. When Hp could not administrate its club 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 problem for the owner. The biggest factor of all is that to combine the culture existing in the two associates would be a very difficult job.
Financial Impact: This is mostly because the shop 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 revenue and Hp being diluted at the same time, the problems are bound to develop. This would mean that drawing money from the equity shop 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 problem 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 better to withhold wealth rather than to risk it with extravagant risk taking. This high risk profile of Fiorina was a small 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 continued from the shop along with all the investors of the company. So, this practical department problem was very preeminent inspecting the fact that it contained two of the most grand hardware associates in the world. There were a amount of options like change Management, Economic wise Management, and Organizational management 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 diagnosis of the Case
Positive Aspects
A Ceo will all the time consider such a merger to be an opportunity to take a competing 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 linked 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 confident that the shareholders have a lot to gain from it. The surmise for the same is the increment in the control of the market. So, even of the conditions were not convenient from the financial perspective, this truth would of course make a lot of profits for the company in the future.
* development of Markets: Two organizations get complicated in mergers as they want to improve their shop 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 piquant task is on head. A suitable situation scanning is principal before putting your feet in International arena. Here, the competitor for Hp was Compaq to a large degree, so this merger of course required a lot of thinking. Organizations merge with the international associates in order to set up their brands first and let people know about what they are capable of and also what they eye in the future. This is the surmise that after this merger the products of Compaq would also have the logo of Hp. Once the shop 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 club of monetary resources, intellectual capital and raw materials offers a competing benefit to the companies. When such associates merge, many of the intellects come together and work towards a common 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.
* management 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 production selection of the provide chain also increase. Now even though Hp is a pioneer in inkjet orienting, it would not have to use the goods based factory layout which is more expensive. It can administrate the risk of taking process based factory layout and make things cheaper. Manufacturing and Processing can now be done in varied 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 development will assuredly be there because of the successful revenue and turnover value which Hp would be production with this merger.
* principal political regulations: When organizations take a leap into other nations, they need to consider 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 strangeness for the company. The company would only need to make confident minor regulations with the political parties of some countries where Compaq was successful more than Hp.
* better Opportunities: When associates 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 storehouse 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. supplementary storehouse 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 of course start to function. In the principal phase of implementation itself, the associates come to know that it would not be beneficial 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 extremely likely. So, motivation surrounded by the employees is an extremely foremost consideration 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 small 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 investment would go to be a waste. Moreover, even more would be required to re-promote as a singular entity. Even the containers where the entire 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 associates such as Hp and Compaq, many problems can take place because both the associates have worked on separate strategies in the past. Now, it might not seem principal for the Hp management 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 associates after signing an bargain 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 make a abhorrence sense towards each other and also start charging each other for the failure.
Human reserved supply Differences: Problems as a succeed of cultural dissimilarities, hospitality and hostility issues, and also other behavior linked 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, development of the combined company to accomplish its mission is delayed. Merged associates set the goal and when the goal is not done due to some faults of any of the two; then both of them make a confident degree of hatred for each other. Also clashes can occur because of bias reactions. (William, 2008)
Risk management failure: associates that are complicated in mergers and acquisitions, come to be over confident that they are going to make a behalf 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. sufficient risk management 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 linked with the merger.
Strategic Sharing
Marketing
Hp and Compaq would now have common 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 available at a cheaper price. The end users are also likely to increase. Now, the company can re frame its competing 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 course is likely to be enhanced with Compaq playing its part. Now, the company can look send to cross selling, subsidization and also a reduced cost.
Operations
The foremost benefit in this area is that in the location of raw material. Even the processing style would be same production the products and services synchronized with the ideas and also in production 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 associates would now have co-production, make 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 common 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 common goods and process technology, the technological strategy of the merged company would promote extremely frugal functioning. This can be done straight through a common research and development and designing team.
Buying
The buying strategy of the company would also succeed a common mechanism. Here, the raw materials, machinery, and power would be common hence decreasing the cost once again. This can be done straight through a centralized mechanism with a lead purchaser retention common 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 foremost part of the strategies that would be made after the merger. The associates would have common shareholders for providing the principal infrastructure. The capital source, management 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 common accounting system. Hp does have an selection 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 common accounting, legal and human reserved supply system. This would ensure that the investment relations of the company would improve. None of the Compaq investors would hesitate in production an investment if Hp follows a common strategy.
Hp would now have to ensure Other fact that with this merger they would be able to prove competitors to the present target and those of competitors like Ibm as well. Even the operations and the output shop needs to be above what exists at present. The company needs to ensure that the corporate strategy that it uses is productive sufficient to help such a future. The degree of diversification needs to be managed thoroughly as well. This is because; the products from the two associates 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)
See Also : printer ink toner cannprintersupport samngprintersdrivers
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