Hp Compaq Essay - 672 Words

Question 1 Using a SWOT analysis, identify the key strategic fits between the two companies. What are the most important expected synergies? Strength Weakness ï  · Ability to serve customers at lower cost ï  · Compaq was a significant player in enterprise systems and HP in IT services business ï  · Wider spectrum of products for its clients through the merger ï  · Strong brand recognition, something that takes time to build ï  · Highly complimentary RD ï  · Overlapping management ï  · Overlapping product lines ï  · Diluted interests in imaging and printing which were traditionally HP’s strengths Opportunity Threat ï  · The next IBM? (HP was looking to expand its services business through both organic and inorganic channels) ï  · Compaq was the market†¦show more content†¦The expected cost synergies (as announced by HP) are approximately $2.5 billion . This amounts to approximately $0.83 per share in the merged firm. The market value of Compaq at the time was approximately $21 billion pre-merger announcement, meaning that a reasonable price for Compaq should be $23.5 billion. So the final exchange ratio price of $25 billion includes a premium of 6.3% or $1.5 billion. Considering that the PC market had matured and was faced with increasing competition with price undercutting by competitors, the price offered by HP seems rather optimistic. (Refer to HP-Compaq key note slides) ï  · One of the assumptions is the P/E of 15x to 25x. Is this justified? 0 ï  · Is the discount rate of 15% justified? (Look at the back and use beta to calculate). If you calculate it, it seems reasonable. (Beta for HP is 1.5 and 15% discount rate is viable) ï  · Revenue loss of $4.1 billion. Where could this come from? ANS: Overlapping businesses and cannibalisation of products and hence natural revenue loss. Question 3 (exhibit 5 – 7 ) Conduct a simple valuation of Compaq. Does your valuation differ significantly from the HP offer price and why? Do you think the offer price is appropriate? Brief background of Compaq: Founded in 1982 its primary strengths are in innovation and its low cost structure of its products which compete with Dell. Its primary business divisions are commercial and consumer PCs, enterprise computing and global services. ItsShow MoreRelatedHp and Compaq Merger3801 Words   |  16 PagesUniversity November 6, 2011 Hewlett- Packard Company, referred to as HP, is an American multinational information technology company. Its headquarters is based in California USA. The company was founded in 1939 built in a Palo Alto garage by Bill Hewlett and David Packard and is now one of the world’s largest information technology companies operating worldwide in almost every country. It has 87,000 employees in 120 countries. 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