HP Compaq Merger

Abstract

On September 2, 2001, Compaq and Hewlett-Packard Company (“HP”) announced that a definitive merger agreement was unanimously approved by both board of directors subject to approval by regulators and shareholders. The new HP offered most complete set of IT products and services for both businesses and consumers to serve customers with open systems and architectures. The combined firm valued at $87 billion had number one position globally in servers, access devices (PCs and handheld), imaging, and printing. Under the terms of agreement, Compaq shareholders received 0.6325 of the newly issued HP share for each outstanding share of Compaq common stock. The deal was valued at $25 billion. HP shareowners owned approximately 64%, and Compaq shareholders owned 36% of the merged company. The anticipated synergies resulted from product rationalization, efficiencies in administration, procurement, manufacturing, and marketing and savings from improved direct distribution of PCs and servers. The merger was considered a failure. Under the leadership of CEO Carly Fiorina, the merged HP lost half of its market value, and the company incurred heavy job losses. Fiorina stepped down in the year 2005. HP had to write off a chunk of the $14.5 billion in goodwill assets that it had set up on its books after the deal. Cumulatively the HP stock lost 29.81% in value during the merger period of analysis.