hewlett-packard compaq merger business decision making spring 2005

Hewlett-Packard Compaq Merger

Business Decision Making

Spring 2005

What We Hoped to Learn

• Basic M&A criteria

• How the AHP process really works

• What happened with HP & Compaq and how can we make it better in the future?

Outline

I. Organizational StructureII. Introduction

III. Criteria

IV. Alternatives

V. Hierarchy

VI. Conclusion

Organizational Structure

COORDINATOR

Shannon Caputo

ALTERNATIVES CRITERIA EXPERTS WRITERS

Steve Piskadlo Phil Laspisa Evan Taylor Melissa Shah

Paul Ferraro Kathleen Cardelli -Presentations Jonathan Lai

Shawn Standen Chris Skorski Chris Skorski

Cassie Knox -Expert Choice DOMAIN EXPERTS:

Dr. Stephen Andriole

Professor John Toppel

Outline

I. Organizational Structure

II. IntroductionIII. Criteria

IV. Alternatives

V. Hierarchy

VI. Conclusion

Introduction to HP

• Well-respected systems vendor

• Smaller, but worthy competitor to IBM

• Competes mainly in the hardware business with desktops and servers

• Lacking in the services business

• Undisputed leader with its line of PC printers

Introduction to Compaq

• Compaq sales leveled off with added competition from Dell

• Compaq was best known for its personal computer offerings

• After paying $5.4 billion to finance a merger with Digital Equipment, Compaq eliminated overlap by cutting thousands of jobs worldwide

Carly Fiorina: Mike Capellas:

C.E.O. of Hewlett-Packard C.E.O. of Compaq

Why Merge?

• To compete with IBM and other companies

• The combined services business will have 65,000 services professionals vs. 100,000-plus for IBM

• Reduce Costs

• Bolster stock

Merger Dates

• September 4, 2001 - HP and Compaq announced a definitive merger agreement to create an $87 billion global technology leader.

• Eights months later on May 3, 2002 HP and Compaq officially merge.

What HP Has to Say on Why

• Because in one strategic move, we will become market leaders in servers, in storage and in management software -- the essentials of business infrastructure, where leadership really counts.

• Because we will greatly strengthen our depth and breadth of technology solutions at a time when customers demand integrated, end-to-end solutions.

• Because more inventors and engineers will be focused on solving the toughest technology challenges of our times -- together.

• Because combined we will lead the march toward open standards more effectively than either company could on its own.

• Because for our employees, customers and shareowners, we will be a stronger, more vibrant HP, better conformed to lead and grow under market conditions that will demand unprecedented integration, breadth and flexibility.

• Because in our industry, to stand still is to fall behind.

Outline

I. Organizational Structure

II. Introduction

III. CriteriaIV. Alternatives

V. Hierarchy

VI. Conclusion

Main Criteria

• Ability to Improve Financial Performance

• Ability to Evolve Company

• Ability to Integrate

Ability to Improve Financial Conditions

Ability to Evolve Company

Ability to Integrate

Financial Implications

Model Name: Presentation 2

Treeview

Goal: Should HP and Compaq Merge?

Ability to Improve Financial Conditions (L: .460 G: .460)

Ability to Decrease Costs (L: .643 G: .296)

Ability to Increase Sales (L: .357 G: .164)

PC Technology (L: .422 G: .069)

Server Technology (L: .228 G: .038)

Service Technology (L: .210 G: .034)

Printer Technology (L: .140 G: .023)

Ability to Evolve Company (L: .358 G: .358)

Increase Intellectual Property (L: .600 G: .215)

Improving Brand Value (L: .400 G: .143)

Image (L: .396 G: .057)

Awareness (L: .366 G: .052)

Loyalty (L: .238 G: .034)

Ability to Integrate (L: .182 G: .182)

Human Capital Management (L: .364 G: .066)

Employees/ Culture (L: .667 G: .044)

Channel Partners (L: .333 G: .022)

Company Organizational Structure (L: .251 G: .046)

Resources (L: .222 G: .040)

Technology (L: .337 G: .014)

Marketing (Brand) (L: .268 G: .011)

IT Infrastructure (L: .235 G: .009)

Relationships with Customers & Suppliers (L: .161 G: .007)

Future Planning (L: .163 G: .030)

Strategy (L: .750 G: .022)

Tactics (L: .250 G: .007)

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Jonathan Lai

Ability to Evolve Company

Model Name: Presentation 2

Treeview

Goal: Should HP and Compaq Merge?

Ability to Improve Financial Conditions (L: .460 G: .460)

Ability to Decrease Costs (L: .643 G: .296)

Ability to Increase Sales (L: .357 G: .164)

PC Technology (L: .422 G: .069)

Server Technology (L: .228 G: .038)

Service Technology (L: .210 G: .034)

Printer Technology (L: .140 G: .023)

Ability to Evolve Company (L: .358 G: .358)

Increase Intellectual Property (L: .600 G: .215)

Improving Brand Value (L: .400 G: .143)

Image (L: .396 G: .057)

Awareness (L: .366 G: .052)

Loyalty (L: .238 G: .034)

Ability to Integrate (L: .182 G: .182)

Human Capital Management (L: .364 G: .066)

Employees/ Culture (L: .667 G: .044)

Channel Partners (L: .333 G: .022)

Company Organizational Structure (L: .251 G: .046)

Resources (L: .222 G: .040)

Technology (L: .337 G: .014)

Marketing (Brand) (L: .268 G: .011)

IT Infrastructure (L: .235 G: .009)

Relationships with Customers & Suppliers (L: .161 G: .007)

Future Planning (L: .163 G: .030)

Strategy (L: .750 G: .022)

Tactics (L: .250 G: .007)

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Jonathan Lai

Ability to Integrate

Model Name: Presentation 2

Treeview

Goal: Should HP and Compaq Merge?

Ability to Improve Financial Conditions (L: .460 G: .460)

Ability to Decrease Costs (L: .643 G: .296)

Ability to Increase Sales (L: .357 G: .164)

PC Technology (L: .422 G: .069)

Server Technology (L: .228 G: .038)

Service Technology (L: .210 G: .034)

Printer Technology (L: .140 G: .023)

Ability to Evolve Company (L: .358 G: .358)

Increase Intellectual Property (L: .600 G: .215)

Improving Brand Value (L: .400 G: .143)

Image (L: .396 G: .057)

Awareness (L: .366 G: .052)

Loyalty (L: .238 G: .034)

Ability to Integrate (L: .182 G: .182)

Human Capital Management (L: .364 G: .066)

Employees/ Culture (L: .667 G: .044)

Channel Partners (L: .333 G: .022)

Company Organizational Structure (L: .251 G: .046)

Resources (L: .222 G: .040)

Technology (L: .337 G: .014)

Marketing (Brand) (L: .268 G: .011)

IT Infrastructure (L: .235 G: .009)

Relationships with Customers & Suppliers (L: .161 G: .007)

Future Planning (L: .163 G: .030)

Strategy (L: .750 G: .022)

Tactics (L: .250 G: .007)

Page 1 of 24/26/2005 12:14:45 PM

Jonathan Lai

Outline

I. Organizational Structure

II. Introduction

III. Criteria

IV. AlternativesV. Hierarchy

VI. Conclusion

Alternatives

• Should they Merge? YES

• Should they Not Merge? NO

Outline

I. Organizational Structure

II. Introduction

III. Criteria

IV. Alternatives

V. HierarchyVI. Conclusion

Expert Choice

Outline

I. Organizational Structure

II. Introduction

III. Criteria

IV. Alternatives

V. Hierarchy

VI. Analysis & RecommendationsVII. Conclusion

Results

NO 53.4%YES 46.6%

Based on the M&A criteria recommended by our domain experts, HP and Compaq should not have merged

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

No Yes

Sensitivity Analysis

To change the final outcome…

• Ability to Improve Financial Performance must increase from 46.6 to 55.7 or a 19.5% change

• Ability to Evolve Company must decrease from 35.8 to 27.8 or a -22.3% change

• Ability to Integrate does not affect the decision

Overall, the final answer is not very sensitive to any of the criteria

Outline

I. Organizational Structure

II. Introduction

III. Criteria

IV. Alternatives

V. Hierarchy

VI. Analysis & Recommendations

VII. Conclusion

What Happened?

• They did manage to save $3 billion with the merger, successfully accomplishing their main goal of reducing costs of $2.1 billion

• However, that came at the price of firing 44,000 employees over the last 3 years– Original estimate: 15,000-17,000

Conclusions

Based on the criteria the HP and Compaq

merger should not have gone through.

Problems with integration as well as evolving the company

can be forecasted through the AHP process we have

shown here today.

Mark Hurd: HP’s New C.E.O.

Mark Hurd, a former president at NCR corporation, where he spent 25 years; was appointed C.E.O. and president of Hewlett-Packard on March 29, 2005.

Thank You!

Questions?