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 Structure II.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.Introduction III.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, 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.Criteria IV.Alternatives V.Hierarchy VI.Conclusion

Main Criteria Ability to Improve Financial Performance Ability to Evolve Company Ability to Integrate

Financial Implications

Ability to Evolve Company

Ability to Integrate

Outline I.Organizational Structure II.Introduction III.Criteria IV.Alternatives V.Hierarchy VI.Conclusion

Alternatives Should they Merge?YES Should they Not Merge?NO

Outline I.Organizational Structure II.Introduction III.Criteria IV.Alternatives V.Hierarchy VI.Conclusion

Expert Choice

Outline I.Organizational Structure II.Introduction III.Criteria IV.Alternatives V.Hierarchy VI.Analysis & Recommendations VII.Conclusion

Results NO 53.4% YES46.6% Based on the M&A criteria recommended by our domain experts, HP and Compaq should not have merged

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?