The document provides an overview and analysis of the HP-Compaq merger. It begins with background on the PC industry and Porter's Five Forces analysis. It then discusses HP and Compaq's competitors and performs a SWOT analysis of the merger. Both management's reasons for the merger and dissenters' concerns are outlined. After shareholder approval, the document outlines HP's timeline and developments following the merger and integration of Compaq.
The document provides an overview and analysis of the HP-Compaq merger. It begins with background on the PC industry and Porter's Five Forces analysis. It then discusses HP and Compaq's competitors and performs a SWOT analysis of the merger. Both management's reasons for the merger and dissenters' concerns are outlined. After shareholder approval, the document outlines HP's timeline and developments following the merger and integration of Compaq.
The document provides an overview and analysis of the HP-Compaq merger. It begins with background on the PC industry and Porter's Five Forces analysis. It then discusses HP and Compaq's competitors and performs a SWOT analysis of the merger. Both management's reasons for the merger and dissenters' concerns are outlined. After shareholder approval, the document outlines HP's timeline and developments following the merger and integration of Compaq.
The document provides an overview and analysis of the HP-Compaq merger. It begins with background on the PC industry and Porter's Five Forces analysis. It then discusses HP and Compaq's competitors and performs a SWOT analysis of the merger. Both management's reasons for the merger and dissenters' concerns are outlined. After shareholder approval, the document outlines HP's timeline and developments following the merger and integration of Compaq.
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HP-COMPAQ
MERGER
Chris Althoff, Megan Jones, Paul Gavin,
Jennifer Noinaj, Scott Shapiro BADM449 11/12/2009
AGENDA 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Background Porter's 5 Forces HPs Competitors SWOT Analysis Stakeholder Analysis Merger Pros Merger Cons Result HP Today Recommendations
INDUSTRY BACKGROUND
Fueled by competition and changing
market New product introductions and improvements Firms had to keep pace to be successful
PORTERS FIVE FORCES
Threat of New Entrants (Barriers to Entry): (Moderate) PC market developing computing equipment
Product differentiation
Transferring files Standardization of most computer components
Access to distribution channels
Rapid moving industry
Technology constantly improving
Moderate customer switching costs
Economies of scale Low capital requirements
High for direct-to-customer
Internet & computer retailers
Expected retaliation from existing firms
PORTERS FIVE FORCES
Bargaining Power of Buyers: (Low) Switching costs are high Low number of suppliers Suppliers operate with high fixed costs Bargaining Power of Suppliers: (High) High number of customers who are fragmented A few larger suppliers (Foxconn, Intel, Hitachi) Difficulty re-producing specialized technology.
PORTERS FIVE FORCES
Threat of Substitutes: (Moderate) Switching costs for consumers would be high Frequent product introductions and continuous improvements in price Rivalry: (High) High Fixed costs Barriers for exit are high Constant changes to products and price Two big players hold the top two market share spots in the computer hardware industry. IBM Dell
COMPETITORS - IBM
Strong R&D and marketing
Gave rise to PC industry with Microsoft Windows OS IBM Global Services strong customer assistance Created a conflict of interest
COMPETITORS - DELL
Direct business model
Low inventory costs, introduce new technology quickly Dell.com Close customer relationships built loyalty Ranked #1 in global PC market share in 2001
COMPETITORS - COMPAQ
Highly successful early on with leadingedge technology
Trend-setter price strategy in early 90s Dealer network for sales, later Internet sales Acquired Tandem Computer and Digital Equipment Corporation Revenue increased but high merger expenses and heightened competition
HP HISTORY
Founded in 1939 by William Hewlett
and David Packard 87,000 employees, 120 countries Drive to be industry leader in every category Actively expanded into new markets
HP HISTORY
Late 90s brought innovation, but low sales
growth Trouble keeping up with changing market CEO retires, name Carly Fiorina as new CEO Focus on customer and Internet sales Revamped organizational structure Front-end supported by strong back-end
HP PRODUCTS
3 Major Business Segments
Imaging and Printing Systems
Computing Systems
1st in global printer market in 2001
4th in PC and server markets in 2001
Information Technology Services
8th in global services market in 2001
HP PRE-MERGER
Experienced revenue growth but share
price still declined Faced recession in 2001 Pay cuts and layoffs Stock price continued to fall Began to consider acquisitions
SWOT ANALYSIS Strengths: Compaq-Server category and overall storage HP-High-end storage Strong brand recognition Weaknesses: Developing a direct distribution model Consulting and outsourcing (low market share) Compaq-Printers (low market share)
SWOT ANALYSIS Opportunities: Merger could improve economics and innovation
Economies of scale
Strengthen leadership in storage
Market growth in IT services
Threats: Dell increases pressure in the low-end server market IBM, Dell and new entrants erode more market share
STAKEHOLDER ANALYSIS Focus on the primary stakeholders: Competitors Public Customers Shareholders
STAKEHOLDER ANALYSIS
Competitors
IBM, Sun, Dell
Cost savings by HP
Public and Customers
Allows HP to reach more people
Adds Compaqs stable of customers
Tap into Compaqs positive image
Could potentially entice new investors
STAKEHOLDER ANALYSIS SHAREHOLDERS
Compaq stock and HP stock struggling HP executives believed mergers cost savings would become a huge asset for HP Dissenters to this notion form
Walter Hewlett
HP-COMPAQ MERGER DISSENT
Walter Hewlett: Son of HP co-founder
and current HP director
Packard Foundation
Controlled the Trust and the Foundation
which owned 5.9% HP stock Largest HP shareholder: 10.4% HP stock
Both conduct independent analysis of
proposed merge and decide to vote against
MANAGEMENTS REASONS FOR
MERGER 1. 2.
3.
4.
Improved Economics and Innovation
Complementary Leadership in Key Markets Strengthened Business Provides Critical Mass in Key Growth Market Financial Benefits
1. IMPROVED ECONOMICS AND
INNOVATION
Combined company creates economies
of scale Direct sales channel More flexible distribution model
2. COMPLEMENTARY LEADERSHIP IN KEY MARKETS
Industry leading product line in entire
server category Industry leader in enterprise storage segment and storage area networks Broader portfolio of products and services
3. STRENGTHENED BUSINESS PROVIDES CRITICAL MASS IN IT SERVICES
65,000 IT architects in 160 countries
Accelerates growth
Better customer loyalty
Leading position in managed services, mission-critical services, and multivendor support
4. FINANCIAL BENEFITS
Estimated $2.5 billion in annual cost
savings by mid-2004 Would allow HP to increase investment in the imaging and printing business
REASONS AGAINST THE MERGER
1. 2.
3.
4.
HPs Business Portfolio Will Be Worse
The Integration Risk of the Proposed Merger is Substantial Negative Financial Impact on HP Stockholders HPs Strategic Position Will Not Materially Improve
1. HPS BUSINESS PORTFOLIO WILL
BE WORSE
Increased exposure in unprofitable PC
business Imaging and printing segment was expected to grow over 10% per year PC market was expected to shrink
2. THE INTEGRATION RISK OF THE
PROPOSED MERGER IS SUBSTANTIAL No significant merger involving
computer companies had ever met
expectations HP management had no experience with a merger this large Analysts estimated revenue losses could be as high as 15-17%
3. NEGATIVE FINANCIAL IMPACT ON
HP STOCKHOLDERS
Dramatic drop in stock price after
proposed merger was announced Wall Street predicted low estimates for future financial performance
4. HPS STRATEGIC POSITION WILL
NOT MATERIALLY IMPROVE
Neither company had a profitable PC
business model Neither company had successfully transitioned to a direct distribution model Merger would not materially improve HPs market position in high-profit areas
SO, WHAT HAPPENED?
51.4% shareholder approval margin
Showed a high level of uncertainty
Supporters felt it was the best option
available for the two firms Critics against the merger voiced opinions about the future strategy and the riskiness of large mergers
HP TIMELINE (2004 2006)
2004
Digital entertainment products Plasma & LCD TVs, HP Digital
Entertainment Center (management of music, movies, photos)
Acquired Riverstone Networks, Ethernet routers, for $28 million
Acquired Synstar, independent provider of IT services, for $293.3 million
2005
Acquired Snapfish, online photo service company
Acquired Scitex Vision, industrial wide-format digital printing
2006
Acquired VoodooPC, high-end gaming PC provider
Acquired Mercury Interaction, IT management software and services
company
Legal investigations board members leaked confidential information to
media
Formal inquiry from Securities and Exchange Commission
Shareholder lawsuits
HP TIMELINE (2007) 2007
HP & Wataniya Telecom Algeria advanced billing solution to support
new mobile services
Established research lab in St. Petersburg, Russia (growing economy)
Expansion of printing, PC & software businesses
Removed itself from NASDAQ listing to reduce the cost of fees and admin duties
Filed patent infringement lawsuits against Acer
Filed Print cartridge and ink formulation patent infringement case
against Pelikan Hardcopy
Awarded 7-year contract for technology services with NASA worth
$5.6 billion
Entered into agreements with 30 content providers for their media
libraries (4,000 movies, TV, films, etc) for production & distribution through HP Video Merchant Services
HP TIMELINE (2008) 2008
HP & Unilever signed a 7-year outsourcing contract for the
management of Unilevers technology infrastructure
Sara Lee renewed its infrastructure outsourcing services contract for
7-years and from 10 countries to 35
HP & Foxconn started constructing a manufacturing facility in Russia
for the production of HP PCs with an investment of $50 million
Created HP & Novell alliance for identity and security management
solutions HP sells Novell products, Novell manages technology
HP & Acer resolved all claims between them
New radio frequency identification (RFID) technology to secure and
improve audit controls in the data center
US Air Force contract for desktop, laptop, and services
Joined with Intel & Yahoo, created a cloud computing research and education data center
Acquired Electronic Data Systems Corp (EDS), global technology
services, for $13.9 billion
HP TIMELINE (2009 PRESENT)
2009
HP & Sun Microsystems agreement HP to distribute and provide
software support for Suns OS on HPs server
10-year contract with Avivia (insurance) to manage 2 data centers for
$1 billion
12-year contract with British Columbia Ministry of Labour and
Citizens Services for hosting and data center services for $586 million
11/11 Acquires 3COM, global enterprise networking solution, for
$2.7 billion
HP TODAY
Total Revenue: $118,364 million (2008)
Net Income: $8,329 million (2008)
13.5% growth over prior year
14.7% growth over prior year
CEO: Mark Hurd
Started on April 1, 2005
HP MARKET SHARE
Leading global PC market for shipments
Leading global server market
EMC, HP (2008)
IT services
40% market share in 2008
Competitors: Xerox, Canon
Storage market
47% HP, 26% IBM (2008)
Leading global printers market
30% market share in 2008
Leading blade servers segment
2006 Took market leadership from Dell
18% HP, 14% Dell, 11% Acer, 7% Lenovo (2008)
2nd largest player (EDS acquisition in 2008)
Competitors: Accenture, IBM
Branding
#12 in Top 100 Best Global Brands (Interbrand, 2008)
#1 in US, #10 in world for Environment, Social Impact Ratings (The Economist, 2008)
HP STRUCTURE NOW
7 business segments
Technology Solutions Group
Enterprise Storage and Servers (ESS)
HP Services (HPS) HP Software
Personal Systems Group (PSG)
Imaging and Printing Group (IPG) HP Financial Services (HPFS) Corporate Investments
PC SHIPMENTS FOR 3Q09 (US &
INTL)
Source: IDC Worldwide, Quarterly PC Tracker 10/09
GROWING INDUSTRY TRENDS
Enterprise mobility
Web & video collaboration
Services offered over the Internet
Cloud computing market: 40% growth rate 23% share of the software market by 2010 >$40 billion by 2012 63% of companies by 2010
Business intelligence, Web 2.0, data mining
Security, risk, compliance Energy-efficient data centers
Virtualization: 50-60% of all servers
Eliminates energy costs, maintenance, cooling expenses, and data center costs by as much as 90%
RECOMMENDATIONS
Consumer trends
Enterprise trends
Media & entertainment growth
Manufacturing green servers, acquiring analytics companies, SaaS options
