• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

HP Compaq merger.

Extracts from this document...


Financial Management By: Catherine Syder HP Compaq merger Course: MA International Finance In September 2001, two leading companies in the computing industry announced that they were going to merge. As one of the biggest deals in the computer industry, Hewlett-Packard Company was going to purchase Compaq Computer Corporation for $25 billion. There were several reasons mentioned for the merger. The main reason was that the size of the new merged business would enable the company to purchase stock in large quantities and take advantage of the discounts offered. (This was mentioned in a report in BusinessWeek.) The newly appointed CEO, Fiorina had mentioned that the combined amount spent on supplies of the two companies was about $65 billion and the discount that could be achieved by buying in bulk would be about 3 or 4%. However, Fiorina's cost cutting techniques did not just consist of the savings on supplies and affected the employees. She decided on postponing pay rises for three months and less than a month after some staff had already agreed to take wage cuts, management announced that they were going to make 6,000 members of staff redundant. ...read more.


Another of HP's press releases stated that the merger was expected to yield savings of $2.5 billion annually. It is good that the companies were expecting to make savings, but the current PC market was in decline and so would make it difficult to make any savings at all. These savings were due to come from Product Rationalization, Efficiencies in administration, procurement, manufacturing and marketing and improved direct distribution of PC's. The savings from product rationalization would be expected to come from using the same computer parts throughout their products, but in the low margin PC's and printer markets, this will not necessarily make any great savings. It would be possible to make savings in administration, procurement and marketing when the departments of the two companies merge as certain jobs which at the moment are done once for each company will only need to be done once. The direct distribution of PC's and servers will help to yield savings as long as HP manage to move to a more "Dell like model", although the HP's server sector does not look too optimistic for the future. ...read more.


I have also looked at the gross profit margins of 2002 and 2003. In 2002, this figure was 25.3% and in 2003, this figure was 25.5%. Not only this, HP managed to return all their major business segments to profitability. The figures are both good profit margins compared to the industry which was reported to be 24.49% in January 2001. In 2003, HP managed to win large contracts with Proctor and Gamble, Bank of Ireland and Telecom Italia. These will be very profitable for the future. To summarise, the stakeholders in HP will have found that after the merger was announced they noticed a dramatic loss in value, and then in 2002 after the merger had taken place, the share prices took a further dip in value as the company got accustomed to the new changes. In 2003, HP started to introduce new products and improve profit margins again and they now have a much better outlook for the future. It is difficult to say whether shareholders would have had greater value if the merger had not gone ahead as we do not know what would have happened, but they would have had to pay the break up fee and had other problems to contend. It seems that HP made the best of a bad situation. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Finance section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Finance essays

  1. Strategic & Decision Making of Sony Corporation

    are employees in the host parent(s) organization who are nationals of neither the foreign parent(s) country nor the host parent(s) country. (6) Third country expatriates of the new venture are employees recruited directly by the venture who are nationals of neither the foreign parent(s) country nor the host parent(s)

  2. Financial Outlook of Spinning Industry of Pakistan: 2006-2008

    This classification is based on the natural and instinct nature of the ratios. Gombola and Edward (1983) have grouped ratios into seven following classes: 1. Return on investment 2. Capital intenseness 3. Inventory intensiveness 4. Financial leverage 5. Receivable intensiveness 6.

  1. What is going on between Comcast and Walt Disney

    Comcast has been proving its power by taking over AT&T Broadband 15 months ago and well controlling it up till now. If this takeover proposal to Walt Disney works out, Comcast will create by far the biggest vertical-integrated entertainment giant in the media industry with a market capitalization of over $120 billion.

  2. Financing for Managerial Decision Making - Advance PCS.

    NA NA -0.60 Financial data in U.S. dollars Price Ratios Company Industry S&P 500 Current P/E Ratio 23.0 16.9 31.8 P/E Ratio 5-Year High 94.0 NA 65.1 P/E Ratio 5-Year Low 9.0 NA 25.7 Price/Sales Ratio 0.28 0.67 1.50 Price/Book Value 3.76 3.53 2.85 Price/Cash Flow Ratio 17.10 11.80 15.60 Financial data in U.S.

  1. The steel industry in India.

    Exports showed a strong growth in FY2000 but were stagnant in FY2001 and declined marginally in FY2002. Several other global markets may get closed since countries may retaliate against the US move by imposing restrictions in their domestic markets. The domestic demand will be a function of the growth prospects

  2. Ing direct

    When compared with Example (ING Directs competitors) who posted a total loss of £14M in 2006, compared with a profit of £44M in 2005 this is as a result of consumers reducing. Their borrowing and spending and also increase in bad debts. This comparison means ING directs find a lot better than its competitors (see Appendix B ).

  1. Financial Administration / Hospital in Spanish

    De esta manera se quieren disminuir los riesgos que puedan resultar de un tratamiento estético, asegurando que el paciente se encontrara estable en todo momento. Las instalaciones State of the Art (Estado del arte) ofrecerán comodidad a todos nuestros pacientes.

  2. FEMSA - Somos una compaa mexicana con sede en Monterrey, N.L., Mxico, y nuestro ...

    El 31 de agosto del 2004, consumamos una serie de operaciones con InBev, Labatt y ciertas de sus afiliadas para rescindir los acuerdos existentes entre FEMSA Cerveza y Labatt. Como resultado de estas operaciones, FEMSA adquirió el 100% de FEMSA Cerveza, y se rescindieron acuerdos previos existentes entre afiliadas de

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work