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HP-HEWLETT PACKARD
The company pre-merger
In 1938, two Stanford graduates in electrical engineering, William Hewlett and David Packard, started their own business in a garage behind Packards Palo Alto home. One year later, Hewlett and Packard formalized their business into a partnership called Hewlett-Packard. HP was incorporated in 1947 and began offering stock for public trading 10 years later. Annual net revenue for the company grew from $5.5 million in 1951 to $3 billion in 1980. By 1997, annual net revenue exceeded $42 billion and HP had become the worlds second largest computer supplier. The company, which originally produced audio oscillators, introduced its first computer in 1966. In 1972, the company pioneered the era of personal computing by introducing the first scientific, hand-held calculator. Hewlett-Packard introduced its first personal computer in 1980.Five years later, HP introduced the LaserJet printer, which would become the companys most successful product ever.
HP-Product Portfolio
1. 2. 3. 4. 5. 6. 7.
Laptops/Notebooks Palmtops/PDA Printers & printing consumables Digicams Scanners Moniters Mainframes
Major Competitors:
IBM Servers, PCs, storage and IT services Dell PCs Canon Printers, fax, copiers, optical equipment Compaq Pc, Servers, Pocket computers
COMPAQ
The company pre-merger:
Compaq Computer Corporation is an American personal computer company founded in 1982. Once the largest supplier of personal computing systems in the world, it had the charm of being called the largest manufacturers of personal computing devices worldwide. The company was formed by Rod Canion, Jim Harris and Bill Murto former Texas Instruments senior managers. The name "COMPAQ" was derived from "Compatibility and Quality", as at its formation Compaq produced some of the first IBM PC compatible computers. 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 commercial benefits from the computer as it sold more than 53,000 units in the first year with a revenue generation of 111 million dollars. Compaq existed as an independent corporation until 2002, when it was acquired for $25 billion by Hewlett-Packard. Prior to its takeover the company was headquartered in northwest unincorporated Harris County, Texas, United States.
Compaq-Product Portfolio
1. 2. 3. 4. 5. 6. Enterprise computing group Mainframes servers workstations Internet products networking products Commercial desktops Portables Small and medium business solutions
Compaq Competitors
IBM Servers, PCs, storage and IT services. Sun Microsystems Servers Dell PCs HP PCs, IT services and pocket computers Palm Pocket computers
OBJECTIVE OF MERGERS
The objectives of merger are: Increase competition with major competitors. i.e. IBM, Dell. n Cut costs by $3 billion annually by 2004 n Increase earnings for shareholders n Face the challenge of a shrinking market
HP wants to emulate IBM's push into consulting and other servicesThe accelerated cost savings come from leveraging HP's new bulk to renegotiate contracts for supplies such as memory chips and hard drives. A big chunk of the savings--$1.5 billion annually--will come from trimming the payroll. And investors could benefit big time from huge cost savings. By eliminating redundant administrative functions, HP cost savings would reach $3 billion a year by 2004. The company would likely write off most of the more than $1 billion cost of the merger in 2002. The new HP will exploit its market power for everything from better deals with suppliers to pressuring software developers such as Oracle Corp.and SAP to push HP gear. Then, over time, it will develop the consulting and software smarts to help customers deliver whizzy new offerings. The accelerated cost savings come from leveraging HP's new bulk to renegotiate contracts for supplies such as memory chips and hard drives. A big chunk of the savings--$1.5 billion annually--will come from trimming the payroll.
ADVANTAGES OF MERGER:
Market Benefits 1. Merger will create immediate end to end leadership 2. Compaq was a clear in the PC business and stronger on the commercial side than HP, but HP was stronger on the consumer side. Together they would be in market share in 2001 3. The merger would also greatly expand the numbers of the companys service professionals. As a result, HP would have the largest market share in all hardware market segments and become the number three in market share in services; 4. Improves access to the market with Compaqs direct capability and low cost structure; 5. The much bigger company would have scale advantages: gaining bargaining power with suppliers; and scope advantage: gaining share of wallet in major accounts. Operational benefits of Merger 1. HP and Compaq have highly complementary R&D capabilities 2. HP was strong in mid and high-end UNIX servers, a weakness for Compaq; while Compaq was strong in low-end industry standard (Intel) servers, a weakness for HP 3. Top management has experience with complex organizational changes 4. Merger would result in work force reduction by around 15,000 employees saving around $1.5 billion per year Financial Benefits 1. Mergers will result in substantial increase in profit margin and liquidity. 2. 2.5 billion is the estimated value of annual synergies. 3. Provide the combined entity with better ability to reinvest.
In addition to these points, Mr. Hewlett specifically pointed out the fact that he does not believe that this merger will aid HP in creating shareholder value nor does he felt this was worth the risk. Also the son of HP co-founder Dave Packard said he would vote the 1.3% stake he controlled against the Compaq deal the day after childhood friend Walter Hewlett announced his opposition. His big problem with the deal: It would require 15,000 layoffs.
DEAL
Announcement Date Name of the merged entity Chairman and CEO President Ticker symbol change Structure: Form of payment Deal Exchange Ratio
September 4, 2001 Hewlett Packard Carly Fiorina Michael Capellas From HWP to HPQ Stock-for-stock merger Stock Approx $ 25 billion 0.6325 HPQ shares to each Compaq Shareholder 64% - former HWP shareholders 36% - former CPQ shareholders 18.6% before merger 8.4% after merger Purchase Reverse Triangular Merger Horizontal Merger
Ownership of Hewlett and Packard Families Accounting Method Merger method Merger Type
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TYPE OF MERGER
It was Reverse triangular merger. When the subsidiary of the acquiring corporation merges with the target firm. In this case, the subsidiary's equity merges with the target firm's stock. As a result of the merger, the target would become a wholly-owned subsidiary of the acquirer and shareholders of the target would get shares of the acquirer. A subsidiary Heloise Merger Corporation was created solely to facilitate the merger Result : A tax free reorganization in which HP would control all of Compaqs assets through a wholly owned subsidiary
Stock
DEAL VALUATION:
Financial Highlights:
Particulars Total revenues Assets Operating Earnings Number of Employees Market capitalization (as on 31staugust,2001)
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EPS CALCULATIONS:
Particulars EPS before merger EPS of HPQ after merger 0.31 HP 0.21 COMPAQ 0.33
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NEW LEADERSHIP
RETENTION OF ENTITY
The merged companies are working with the name of HP Compaq.The merged entity will be headquartered in Palo Alto and retain a significant presence in Houston, which will be a key strategic center of engineering excellence and product development. The new HP will be structured around four operating units that build on the companies' similar go-to-market and product development structures to provide clear customer and competitive focus. Leadership and estimated revenues (calculated by combining the two companies' trailing four reported fiscal quarters) are as follows: A $20 billion Imaging and Printing franchise to be led by Vyomesh Joshi, currently president, Imaging and Printing Systems, of HP. A $29 billion Access Devices business to be led by Duane Zitzner, currently president, Computing Systems, of HP. A $23 billion IT Infrastructure business, encompassing servers, storage and software, to be led by Peter Blackmore, currently executive vice president, Sales and Services, of Compaq. A $15 billion Services business with approximately 65,000 employees in consulting, support and outsourcing to be led by Ann Livermore, currently president, HP Services.
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The information statement told shareholders that its board of directors spent two and a half years reviewing options and deciding upon the best direction for HP's future. /17Opponents of the Compaq takeover lost the fight. The management, under Carly Fiorina, remained in place, and the merger went ahead. HP declares proxy win on Wednesday March 20, 2002.
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COMPAQ
Statement of earnings 1996-2000
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HEWLETT-PACKARD COMPANY
Statement of Earnings 2000-2001
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2007
$104.29B 79.67B 76.97B 2.71B 1.92B 783M 24.62B 15.84B 3.61B 12.23B 0 60M (60M) 391M 598M 0 531M 0 9.18B 1.91B 245M 1.28B
2008
$118.36 90.89B 87.53B 3.36B 2.39B 967M 27.48B 16.65B 3.54B 13.1B 0 356M (356M) 66M 401M 0 467M 0 10.47B 2.14B 449M 858M
2009
$114.5B 89.1B 84.32B 4.77B 3.2B 1.57B 25.46B 14.43B 2.82B 11.61B 0 889M (889M) (243M) 119M 0 597M 0 9.42B 1.76B 220M 1.16B
2010
$125.6B 97.65B 92.83B 4.82B 3.34B 1.48B 28.03B 15.54B 2.96B 12.59B 0 1.73B (1.73B) 525M 111M 0 417M 0 10.97B 2.21B 671M 1.35B
2011
$127.85B 99.17B 94.19B 4.98B 3.38B 1.61B 28.68 16.72B 3.25B 13.47B 0 2.75B (2.75B) 151M 167M 0 551M 0 8.98B 1.91B 531M 1.18B
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Income Tax - Deferred Domestic Income Tax - Deferred Foreign Income Tax Credits Equity in Affiliates Other After Tax Income (Expense) Consolidated Net Income Minority Interest Expense Net Income Extra ordinaries & Discontinued Operations Extra Items & Gain/Loss Sale Of Assets Cumulative Effect Accounting Chg Discontinued Operations Net Income After Extra ordinaries Preferred Dividends Net Income Available to Common EPS (Basic) Basic Shares Outstanding EPS (Diluted) Diluted Shares Outstanding EBITDA
512M (125M)
922M (85M)
735M (356M)
176M 21M
(411M) 611M
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
7.07B 0 7.07B 0
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2007
Assets Total Assets 47402M
2008
51728M
2009
52539M
2010
54184M
2011
51021M
41297M
61603M
62260M
70319M
78496M
Total Assets
88699M
113331M
11479M
124503M
129517M
10913M
21450M
31279M
34651M
40450M
50173M
74389M
74282M
84054M
90892M
Total Equity
38526M
38942M
40517M
40449M
38625M
88699M
113331M
11479M
124503M
129517M
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COMPAQ-CAPITAL STRUCTURE
The authorized capital stock of Compaq consisted of: 3,000,000,000 shares of Compaq Common Stock, par value $0.01 per share 10,000,000 shares of preferred stock, par value $0.01 per share At the close of business on June 30, 2001 1,753,000,000 shares of Compaq Common Stock were issued and outstanding 59,000,000 shares of Compaq Common Stock were issued and held by Compaq in its treasury Stock Options : As of the close of business on August 14,2001 ESOP :279,538,000 shares of Compaq Common Stock are subject to issuance pursuant to outstanding options to purchase Compaq Common Stock
HP-CAPITAL STRUCTURE
Before Merger
1. Stockholders equity: Preferred stock: 300 Million authorized; none issued Common stock: 9,600 Million and 4,800 Million shares authorized at October 31, 2001 and 2000, respectively; 1,939 Million and 1,947 Million shares issued and outstanding at October 31, 2001 and 2000, respectively
2. Dividends The stockholders of HP common stock are entitled to receive dividends when and as declared by HPs Board of Directors. Dividends are paid quarterly. Dividends were $0.32 per share in each of fiscal 2001, 2000 and 1999.
After Merger
1. Stockholders equity Preferred stock: 300 Million authorized; none issued Common stock: 9,600 shares authorized; 2,911 and 3,043 shares issued and outstanding, respectively
2. Dividends The stockholders of HP common stock are entitled to receive dividends when and as declared by HPs Board of Directors. Dividends are paid quarterly. Dividends were $0.32 per common share in each of fiscal 2004, 2003 and 2002.
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ANALYSIS OF MERGER
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
0 -1000 -2000
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HP-PC BUSINESS
Myth:
HP, even after combining with Compaq, cannot fight Dells direct-sales model with their retail (indirect) plus direct model
Fact:
HPs PC business has steadily improved and is bringing competition to Dell that Dell has not seen for the past 5 or 10 years Dell's PC shipments worldwide share fell to 15.2 % from 18.2 % last year, a particularly sharp decline given that the overall market grew 10.9 percent Hewlett-Packard holds 19.1 percent of the world PC market Even in the US, HP and Dell have 24.2 and 26.8 % of the PC market in 2007
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CONCLUSION
The integration of HP and Compaq had been far more successful than anybody would have predicted. The success of the merger would not be measured simply by HP and Compaqs ability to effectively integrate their two organizations or even to cut operating costs by several billion dollars. Rather the success would depend upon the integrated companys ability to grow profitably. This, in turn, could only happen if the two companies could pursue a more powerful corporate strategy by being better together.