Hp Compaq

Question 1
Using a SWOT analysis, identify the key strategic fits between the two companies. What are the most important expected synergies?

Strength Weakness
 Ability to serve customers at lower cost
 Compaq was a significant player in enterprise systems and HP in IT services business
 Wider spectrum of products for its clients through the merger
 Strong brand recognition, something that takes time to build
 Highly complimentary R&D  Overlapping management
 Overlapping product lines
 Diluted interests in imaging and printing which were traditionally HP’s strengths
Opportunity Threat
 The next IBM? (HP was looking to expand its services business through both organic and inorganic channels)
 Compaq was the market leader in fault-tolerant computing and industry standard servers . HP did not have a presence in the former and its position was weak in the latter
 Economies of Scale and Scope
 Innovation
 Market share  Competitive environment
 Decreasing margins in the PC industry from fierce competition
 Maturing products
 Diluting high margin business (e.g. printing and imaging)
 Employee morale
 Organisational culture conflicts
 Server market competitors (e.g. IBM, Dell) eroding market share

HP offers a comprehensive range of products and services, as a merged firm it can generate synergies by increasing its portfolio of hardware and software integrated products at a lower cost . In another words, the merger would create a full service technology firm capable of setting up complex networks.

Whole point of focusing on ‘cost cutting’ was that it is easier than future revenues to quantify. They didn’t focus on economies of scope but rather on layoffs, etc. (figure 1 page 7, Revenue enhancement synergy is not quantified only the cost synergies ).

The value of synergies (from exhibit 9) net of revenue loss impact was expected to be at $5-9 per share of the combined company.
Question 2
Examine the key assumptions