Brief description
The following is a brief description of the two companies:
Hewlett-Packard
It all began in 1938 when two graduates of electrical engineering from Stanford University called William Hewlett. And David Packard started their business in a garage in Palo Alto. In one year, HP became a partner and established HP in 1947. The company has been thriving since profits grew from $5.5 million in 1951 to about $3 billion in 1981. In 1997, HP's net income increased to 42 billion US dollars, the pace of growth is not limited. Starting with the manufacture of audio oscillators, the company produced its first computer in 1966. By 1972, it first introduced the concept of personal computing through a calculator, and in 1980 it furthered the personal computer. The company is also known for its laser printers introduced in 1985.
Compaq
The company is more popularly known as Compaq Computer Corporation. This company was established in 1982 as a personal computer company. It has the charm of being called the world's largest manufacturer of personal computer equipment. The company consists of two senior managers from Texas Instruments. The company's name comes from - "Compatibility and Quality." The company launched its first computer for $2,995 in 1983. Despite being portable, the problem with the computer is that it seems to be a suitcase. In spite of this, this computer brought huge commercial benefits because it sold more than 53,000 units in the first year and generated revenue of US$111 million.
Reasons for consolidation
A very simple question that arises here is, if HP is growing at such a tremendous rate, what are the reasons why the company must merge with Compaq? Carly Fiorina became CEO of Hewlett-Packard in 1999 and played a key role in the merger that took place in 2001. She was the first woman to take over the CEO of such a large company and the first outsider. She was very efficient when she traveled more than 250,000 miles as CEO in the first year. Her basic goal is to modernize the HP operating culture. She attaches great importance to the profitability of the business. This shows that she is very luxurious as a CEO. Although HP's market share increased from 54.43 to 74.48 US dollars, the company is still inefficient. This is because neither the company nor the industry can achieve the goal. HP was forced to reduce its work and was excluded from the privilege of auditing Price Water House Cooper. So even if Fiorina's work is also threatened. This means that the improvement of the company's internal strategy is not enough to achieve the company's success. Ultimately, companies must clearly plan different things. Therefore, it was decided that the company will acquire Compaq in a stock trade with a net value of 25 billion U.S. dollars. Initially, there was no plan for this merger. The first is CEO Hewlett-Packard, Fiorina's telephone conversation with Chairman and CEO Compaq, and Capellas. The idea behind the conversation was to discuss the licensing agreement, but it continued to discuss the competitive strategy and finally the merger. It took two months for further research and by September 2001, the boards of the two companies approved the merger. Although HP's chief executive made this decision, the company strongly opposed the merger. The two CEOs believe that the only way to deal with the increasingly fierce price competition is to merge. But investors and other stakeholders believe that if the product carries the HP logo, the company will never be able to gain the loyalty of Compaq customers. In addition to this, there are issues concerning the synchronization of organizational members with each other. This is also because of changes in organizational culture. Despite these serious issues for the merger, HP CEO Fiorina also proved that sellers will cancel a serious competitor in the oversupply PC market. She said that the company's market share will inevitably increase with immigration, and the work unit will also double. (Hoopes, 2001)
Advantages of Merging
Fiorina's firm determination is that she can insist on her own decisions, although few seem to be favorable at the beginning. Wall Street and all her investors objected to the company's ironic idea that she had achieved 1 + 1 = 1.5 in a very high expansion. Fiorina once said that after the merger, the company will not only have a bigger share in the market, but also double its production units. This means that the company's number will increase significantly. Her dream of competing with giants in the field will also be realized by IBM. She believes that the redundancy of the two companies will decrease because the internal costs of promotion, marketing and transportation will decline with the merger. This will cause the slightest harm to income income. She uses the concept of competitive positioning to prove her merger plan. She said that the merger is based on integrated ideology rather than diversity. She can also defend the allegations of HP's change. She believes that HP has always encouraged change because it is innovative and bold. She said that company requirements are consistent with creativity, improvement and modification. The merger has exactly the same capabilities. (Mergers and Acquisitions, 2010)
Advantages for Shareholders
The following are the ways in which the company is beneficial to shareholders:
Unique opportunities: The status of the company will inevitably merge better. The same reason is that the value created now will be fresh, the quality of leadership will increase, the ability will increase, and the difference in sales and company's strategy will be better than existing competitors. In addition, Compaq's capabilities can also be accessed directly, as the reduced cost structure has become the industry's largest cost. Finally, people can also see the opportunity for reinvestment.
More powerful companies: The profitability of companies, access and service industries will surely grow at a high level. The company can also see better opportunities in its R&D. The company's financial position on EBIT and net cash are also increasing.
Convincing economics: The expected second-quarter earnings for the first fiscal year totaled 13%. The company can also better subdivide the market to predict its revenue. This will reach a synergy effect of up to $2.5 billion a year.
Execution Capability: Because the company's planning process will be integrated, the possibility of creating value is also great. In addition, the experience of leading a diverse workforce structure will also emerge there. (HP's acquisition of Compaq, 2001)
Opposition to merger
In fact, only CEO Fiorina agrees with the merger. This is due to the practical application of agency issues arising from changes in the financial strategy of the company's owners and management. If the seller does not become effective, Fiorina will certainly lose her job. The reason is that Hewlett-Packard is unable to meet its demand goals under its leadership. However, due to the following beliefs of the owners, the owners oppose the merger:
The new investment portfolio will be less favorable: the status of the company as a larger supplier of PCs will certainly increase the number of risks and involve a large amount of investment as well. Another important reason in this context is that HP's primary interest in imaging and printing no longer exists, thus diluting the interests of shareholders. In fact, the company owner also believes that the profit rate and return on investment will be lower.
The strategic issue remains unresolved: Despite the merger, the market position of high-end servers and services still exists. The price of PCS will not be borne by everyone. The necessary changes in imaging and printed materials also do not exist. This merger has no effect on low-end servers because Dell will take a leading position in IBM and Sun's leading and high-end servers. Companies will also be excluded from the advantages of outsourcing because it will have surplus labor. Therefore, quality cannot be guaranteed to improve. Finally, in any case Fiorina believes, the merger does not equal IBM.
Great integration risks: This huge merger has no successful examples. In general, when the market does not support such mergers, do not do it as well as here. When HP cannot properly manage its organization, consolidation will only increase the difficulty. This situation will be even more difficult due to the competition between HP and Compaq. This risk condition is prone to happen. Companies will also have to change costs and cause greater trouble for the owners. The biggest factor is that integrating the culture of the two companies will be a very difficult task.
Financial impact: This is mainly because the market reaction is negative. On the other hand, Compaq's position is completely different from that of HP. As the company's contribution to revenue is even greater, and HP is diluted, the problem is bound to grow. This means that HP is also difficult to draw from the stock market. In fact, for Compaq and the future, this does not seem like a very profitable merger.
The basic problem that the company owner encounters in the merger is to hinder HP's core value. They feel that saving wealth is better than risking risk. Given Fiorina's prospects, the company's owners are somewhat unacceptable to Fiorina's high-risk situation.
Therefore, in terms of the merger of HP and Compaq, on the one hand, the fierce determination of CEO Fiorina, on the other hand, is strongly opposed by the company owner. This objection continues to come from markets including all investors in the company. So, this actual agency problem is very famous, because it contains two of the world's most powerful hardware companies. There are many options, such as change management, economic intelligence management, and organizational management, that can be considered for analysis. However, this case study can be best resolved through strategic and wise analysis. (HP Compaq M&A faces strong opposition from shareholder stock prices, falling again in 2001)
Strategic analysis of cases
Positive aspects
CEOs will always consider such a merger as an opportunity with IBM Compared with such competitors, they have a competitive advantage in this situation and also have a certain interest in shareholders. The following are the strategies related to the merger of HP and Compaq:
* Focus on shareholders "Value: If you see this kind of merger from Fiorina's eyes, you can be sure that many shareholders can benefit from it. The same reason is the market. The increase in control power, so from a financial point of view, even if such conditions are not suitable, this fact will certainly bring a lot of profits for the company in the future.
*Market development: both institutions hope because of the domestic and international The market expands into markets and participates in mergers and acquisitions. Integration with domestic companies does not require much effort, but when a company conducts an international merger in this country, a challenging task is on the head. Before the game, a thorough scan of the situation was very important.In this respect, HP's competitor was largely Compaq, so this merger certainly needs a lot of thinking.Organization and international companies merged to establish their brand first, so that people Know their capabilities and future goals. That is after the merger, Compaq products will also have the original HP logo. Once the market is known, HP will not be affected by the brands created by Compaq and they will also be able to attract all of Compaq's customers
*Communication Efficiency: Any company through acquisitions or mergers will try to increase operations and maximize To limit operations to improve efficiency, we can see that HP now has more employees.The only factor is that they must be properly controlled because they have different organizational cultures.(Advantages of Merger: 2010)
* Grants use more resources: Monetary resources, intellectual capital, and improvisational organization of raw materials provide enterprises with a competitive advantage. When such companies merge, many intellectuals come together to work together to provide financial profits to the company. Here, people cannot Deny even the fact that Compaq's top brain will participate in the formation of corporate strategy in the future
* Risk Management: If we usually use this as an example, HP and Compaq will merge to reduce their diversity of business opportunities. Risk level. The option of choosing a supply chain also increases. Although HP is a pioneer in inkjet directionality, it does not have to use more expensive product-based device layouts. It can manage the risk of adopting process-based facility layouts and making things cheaper. Manufacturing and processing can now be primarily based on cost responsibilities. The problem was solved in various countries
*Marketing potential: Although all investors on Wall Street and the company oppose the merger, when the IPO is offered, the development will inevitably develop due to HP's huge profits and turnover through the merger.
* Necessary political regulations: When organizations enter other countries, they need to consider the different provisions of the country's implementation of the site policy. Since HP is already a pioneer in all countries that Compaq uses to conduct business, this pair of companies It will not be too difficult for the company.The company only needs to establish some small rules with the parties of some countries where Compaq over HP is much more prosperous.
* Better opportunity: When the company merges with another company, they can sell according to the needs of the company. This can also be partially completed. If HP thinks it doesn't need much warehouse space, it can sell it with increased profits. This depends on whether the company is now considered to be a manufacturing stock or manufacturing order company.
*Additional products, services, and facilities: Services receive copyright to increase trade levels. Additional warehouse services and distribution channels provide business value. Here HP can use all these values integrated with Compaq to increase its prospects. (Berry, 2010)
Negative aspects
Before the actual start of operation, there were some merger failures. At key stages of the implementation itself, the company began to know that it would not be beneficial if they continued to merge. This may happen in the merger between HP and Compaq for the following reasons.
Dialogue not implemented: Due to inappropriate culture, desires and risk profiles; many transactions cancelled. According to the response of HP owners, this seems very likely. Therefore, in this case, the motivation between employees is a very important consideration. This requires the extra effort of CEO Fiorina. This can also help her maintain her position in the company.
Legal considerations: Anticompetitive transactions are usually subject to the restrictions of a country's competition rules. This resulted in a company that was unable to function properly and they tried to separate from each other. Many unnecessary marketing failures will be added to these conditions. If this happens under such circumstances, then all this money used to promote venture capital will become a waste. Moreover, as a separate entity requires more re-promotion. Even the packaging containing the HP logo in all of Compaq's inventory must be re-completed, which further hampers finance. (Broc Romanek, 2002)
Compatibility issues: Each company runs on different platforms and ideas. Due to synchronization issues, compatibility issues often arise. In IT companies such as Hewlett-Packard and Compaq, many problems can occur because the two companies used to develop different strategies. Now, HP management does not seem to need to make changes to Compaq. Therefore, these problems have now become a matter of great concern to people.
Fiscal disaster: The two companies hope to obtain some returns after signing the agreement so that they can invest in the funds for merger, and they also hope for profit and turnover. If for any reason, they cannot reach that position, then they have aversion to each other and they also begin to fail to charge each other.
Differences in human resources: Due to cultural differences, issues arising from hospitality and hostility issues and other behavior-related issues can separate the origin of mergers.
Lack of determination: When organizations participate, they have their own ideas and they have a vision; but due to the above problems, the time for the combined company to complete the task is delayed. The merged company determines the goal and fails to complete the goal because of either one of the two; then both of them will generate a degree of hatred for each other. Conflicts may also occur due to biased reactions. (William, 2008)
Risk management failure: Companies involved in mergers and acquisitions become too confident that they will benefit from this decision. This can be seen as Fiorina. In fact, she can fight for the entire world. When their confidence becomes overconfidence, they fail. Appropriate risk management methods should be adopted. If the decision-making economy is sluggish, corresponding measures will be taken. These risk policies should govern the fiscal, production, marketing, manufacturing, and inventory and human resource risks associated with the merger.
Strategic Sharing
Marketing
Hewlett-Packard and Compaq currently have a common channel for buying. Therefore, the benefit of this concern is that even for HP's original high-cost materials, it can now be obtained at a cheaper price. End users may also increase. Now, the company can redefine its competitive strategy so that all competitors IBM can give the greatest attention. The advantages of this merger in marketing can be seen from the perspective of shared brand, sales and service. Even if Compaq plays its part, distribution procedures may be strengthened. Now companies can expect cross-selling, subsidies, and cost reductions.
Operation
The most important advantage of this field is the location of raw materials. Even the processing style is the same, synchronizing products and services with ideas and developing a decent operational strategy. Since philosophy and mechanical control are also common, the current business strategy will become the most important in the market. In this regard, the two companies now have a collaborative production, design and staff position. As a result, HP's operational strategy will now use process-based facility layouts and capabilities as well as the shared value mentioned.
Technology
The company's technology strategy can now also be designed together. From HP's perspective in the field of inkjet printer differentiation, this has a drawback, but its advantages are also very rich. Through common products and process technologies, the combined company's technology strategy will promote a high degree of economic operation. This can be accomplished through a common research and development and design team.
Purchasing
The company's buying strategy also follows a common mechanism. Here, raw materials, machinery, and power will be common because of lower costs again. This can be done through a centralized mechanism, and the main buyer must keep in mind the common policy. Now HP must consider inkjet printers and personal computers in a similar manner. This is because the manufacturing parameters will also run for the same reason.
Infrastructure
This is the most important part of the strategy that may be implemented after the merger. These companies will have common shareholders to provide the necessary infrastructure. The source of capital, management style and legislation are also the same. Therefore, infrastructure strategies must take these factors into consideration. This can be accomplished by establishing a common accounting system. HP did not choose to set up a separate accounting system for its manufactured products, but this only caused internal competition. Therefore, the benefits of infrastructure can be achieved through a common accounting, legal and human resources system. This will ensure that the company's investment relationship is improved. If HP takes a common strategy, then Compaq investigators will not hesitate to invest.
Hewlett-Packard must now ensure another fact that through this merger they will be able to prove their current competitors as well as competitor competitors such as IBM. Even the operating and output markets need to exceed current levels. Companies need to ensure that the company strategy they use is efficient enough to help achieve this future. The degree of diversification also needs to be thoroughly managed. This is because the products of the two companies have performed very well in the past. Therefore, the optimal degree of diversification is required in the context so that the company can meet the customer's needs. This was challenged by HP owners but needed to be shipped by CEO Fiorina. (Bhattacharya, 2010),
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Orignal From: Mergers & Acquisitions - HP Compaq Merger Case Study and Analysis
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