Hewlett-Packard—Compaq The Merger Decision Case Solution

The management tackles this complicated issue in a very clever manner. Despite of the fact that there was fierce opposition against this issue but presenting the benefits of the proposed deal management was able to get the shareholders on board. Thus, the idea of getting more financial benefits, wider market share, growth in the technology industry, leader ship in the tech industry allow the management to get the boards and shareholder approval for such a huge deal.

2. The decision to acquire Compaq is of greatest importance as it was going to be the biggest merger deal in the world. There were numerous benefits and advantages which make the proposed deal a good option to go for. Firstly, by acquiring Compaq, HP would be able to improve its economics as the newly owned company would allow it to compete with the industry leader Dell. This could happen if both companies leverage on their strengths and capitalise on their abilities. The combined companies will produce more products and hence the economies of scale would kick in and the cost per unit would decrease marginally. Compaq has already been making progress in developing direct sales channel. Therefore, HP has also this opportunity to capitalise on this flexible distribution channel.

Moreover, Compaq has strength in industry standard servers which when coupled with LINUX and UNIX offered by HP can make HP come up with industry leading product lines. The merged companies would also perform well in enterprise storage segment by integrating HP’s strengths in high end storage.

There also some negative aspects of the merger which are presented Walter Hewlett’s. He was of the view that the pace of market changes is very high and acquiring another company could not be an optimum solution in this environment. In this kind of situation, focusing on the profitable printing business and strengthening in the untapped market would be viable option. The reasons for not acquiring Compaq include primarily the lower interest of shareholders and the increase exposure of the business in unprofitable PC’s segment. Also the integration risk of the proppesed merger would be significant and as HP management has no experience of merger of this magnitude.

3. HP is currently facing challenges that are of strategic of nature and require rapid attention of the management. Firstly, it is facing cost reduction challenge for which it is considering different cost reduction initiatives which include difficult but voluntary severance programs and manufacturing consolidation. The expenses of the company has grown unexpectedly very high in a short span of time and hence the result is lower earnings from operations and net earnings. The fragile and weak macroeconomic environment produced by HP and the competitive price pressure have led the company to experience crash in sales.

Another reason for the reduction in sales was that the management was unable to keep up with the ever growing pace of the market changes and was unable to create dynamic solutions. The inability to adopt the low cost internet based sales strategy was another reason why the expenses were increasing and the earning were reducing.