Brief Description
The following is a brief description of the two companies:
Laser Printer Price
Hp
It all began in the year 1938 when two electrical engineering graduates from Stanford University called William Hewlett and David Packard started their enterprise in a stable in Palo Alto. In a year's time, the partnership called Hewlett-Packard was made and by the year 1947, Hp was incorporated. The enterprise has been prospering ever since as its profits grew from five and half million dollars in 1951 to about 3 billion dollars in 1981. The pace of growth knew no bounds as Hp's net earnings went up to 42 billion dollars in 1997. Beginning with manufacturing audio oscillators, the enterprise made its first computer in the year 1966 and it was by 1972 that it introduced the belief of personal computing by a calculator first which was further industrialized into a personal computer in the year 1980. The enterprise is also known for the laser-printer which it introduced in the year 1985.
Compaq
The enterprise is good known as Compaq Computer Corporation. This was enterprise that started itself as a personal computer enterprise in the year 1982. It had the charm of being called the largest manufacturers of personal computing devices worldwide. The enterprise was formed by two senior managers at Texas Instruments. The name of the enterprise had come from-"Compatibility and Quality". The enterprise introduced its first computer in the year 1983 after at a price of 2995 dollars. In spite of being portable, the question with the computer was that it seemed to be a suitcase. Nevertheless, there were huge market benefits from the computer as it sold more than 53,000 units in the first year with a earnings generation of 111 million dollars.
Reasons for the Merger
A very straightforward query that arises here is that, if Hp was progressing at such a mountainous pace, what was the infer that the enterprise had to merge with Compaq? Carly Fiorina, who became the Ceo of Hp in the year 1999, had a key role to play in the merger that took place in 2001. She was the first woman to have taken over as Ceo of such a big enterprise and the first outsider too. She worked very efficiently as she travelled more than 250,000 miles in the first year as a Ceo. Her basic aim was to update the culture of operation of Hp. She laid great emphasis on the profitable sides of the business. This shows that she was very extravagant in her arrival as a Ceo. In spite of the growth in the market value of Hp's share from 54.43 to 74.48 dollars, the enterprise was still inefficient. This was because it could not meet the targets due to a failure of both enterprise and industry. Hp was forced to cut down on jobs and also be eluded from the privilege of having Price Water House Cooper's to take care of its audit. So, even the job of Fiorina was under threat. This meant that correction in the internal strategies of the enterprise was not going to be adequate for the company's success. Ultimately, the enterprise had to really plan out something different. So, it was decided that the enterprise would be acquiring Compaq in a stock transaction whose net worth was 25 billion dollars. Initially, this merger was not planned. It started with a telephonic conversation between Ceo Hp, Fiorina and Chairman and Ceo Compaq, Capellas. The idea behind the conversation was to discuss on a licensing bargain but it prolonged as a conference on competing strategy and ultimately a merger. It took two months for further studies and by September, 2001, the boards of the two companies beloved of the merger. In spite of the decision advent from the Ceo of Hp, the merger was strongly opposed in the company. The two Ceos believed that the only way to fight the growing competition in terms of prices was to have a merger. But the investors and the other stakeholders belief that the enterprise would never be able to have the loyalty of the Compaq customers, if products are sold with an Hp logo on it. Other than this, there were questions on the synchronization of the organization's members with each other. This was because of the turn in the club culture as well. Even though these were supposed to serious problems with respect to the merger, the Ceo of Hp, Fiorina justified the same with the fact that the merger would remove one serious competitor in the over-supplied Pc market of those days. She said that the market share of the enterprise is bound to growth with the merger and also the working unit would double. (Hoopes, 2001)
Advantages of the Merger
Even though it seemed to be advantageous to very few population in the beginning, it was the strong determination of Fiorina that she was able to stand by her decision. Wall road and all her investors had gone against the enterprise lampooning her ideas with the saying that she has made 1+1=1.5 by her extravagant ways of expansion. Fiorina had put it this way that after the company's merger, not only would it have a larger share in the market but also the units of output would double. This would mean that the enterprise would grow tremendously in volume. Her dream of competing with the giants in the field, Ibm would also come true. She was of the view that much of the redundancy in the two companies would decrease as the internal costs on promotion, marketing and shipping would come down with the merger. This would produce the slightest harm to the range of revenue. She used the ideas of competing positioning to by comparison her plans of the merger. She said that the merger is based on the ideologies of consolidation and not on diversification. She could also defend allegations against the turn in the Hp was. She was of the view that the Hp has always encouraged changes as it is about innovating and taking bold steps. She said that the enterprise requires being consistent with creativity, correction and modification. This merger had the ability of providing exactly the same. (Mergers and Acquisitions, 2010)
Advantages to the Shareholders
The following are the ways in which the enterprise can be advantageous to its shareholders:
Unique Opportunity: The position of the enterprise is bound to good with the merger. The infer for the same was that now the value creation would be fresh, leadership qualities would improve, capabilities would improve and so would the sales and also the company's strategic differentiation would be good than the existing competitors. Other than this, one can also entrance the capabilities of Compaq directly hence reducing the cost structure in becoming the largest in the industry. Finally, one could also see an opening in reinvesting.
Stronger Company: The profitability is bound to growth in the enterprise, entrance and services sectors in high degrees. The enterprise can also see a good opening in its research and development. The financial conditions of the enterprise with respect to its Ebit and net cash are also on the incremental side.
Compelling Economics: The foreseen, accumulation in Iip gains would be 13% in the first financial year. The enterprise could also conduct a good segmentation of the market to forecast its revenues generation. This would go to as much as 2 and a half billion dollars of each year synergy.
Ability to Execute: As there would be integration in the planning procedures of the company, the chances of value creation would also be huge. Along with that the palpate of leading a diversified laborer structure would also be there. (Hp to buy Compaq, 2001)
Opposition to the Merger
In fact, it was only Ceo Fiorina who was in favor of going with the merger. This is a practical application of division question that arises because of turn in financial strategies of the enterprise owners and the management. Fiorina was inevitable to lose her job if the merger didn't take effect. The infer was that Hp was not able to meet the query targets under her leadership. But the owners were against the merger due to the following beliefs of the owners:
The new folder would be less preferable: The position of the enterprise as a larger supplier of Pcs would really growth the estimate of risk and involve a lot of investment as well. Other leading infer in this context is that Hp's prime interest in Imaging and Printing would not exist anymore as a ensue diluting the interest of the stockholders. In fact the enterprise owners also feel that there would be a lower margin and Roi (return on investment).
Strategic Problems would remain Unsolved: The market position in high-end servers and services would still remain in spite of the merger. The price of the Pcs would not come down to be affordable by all. The essential turn in material for imaging and printing also would not exist. This merger would have no ensue on the low end servers as Dell would be there in the lead and high-end servers either where Ibm and Sun would have the lead. The enterprise would also be eluded from the advantages of outsourcing because of the surplus labor it would have. So, the ability is not guaranteed to improve. Finally, the merger would not equal Ibm under any health as belief by Fiorina.
Huge Integrated Risks: There have been no examples of success with such huge mergers. Ordinarily when the market doesn't retain such mergers, don't do well as is the case here. When Hp could not carry on its club properly, integration would only add on to the difficulties. It would be even more difficult under the conditions because of the existing competitions between Hp and Compaq. Being prone to such risky conditions, the enterprise would also have to vary its costs causing greater issue for the owner. The biggest factor of all is that to integrate the culture existing in the two companies would be a very difficult job.
Financial Impact: This is mostly because the market reactions are negative. On the other hand, the position of Compaq was totally different from Hp. As the enterprise would have a greater offering to the earnings and Hp being diluted at the same time, the problems are bound to develop. This would mean that drawing money from the equity market would also be difficult for Hp. In fact this might not seem to be a very profitable merger for Compaq as well in the future.
The basic question that the owners of the enterprise had with this merger was that it would hamper the core values of Hp. They felt that it is good to retain wealth rather than to risk it with extravagant risk taking. This high risk profile of Fiorina was a microscopic unacceptable for the owners of the enterprise in light of its prospects.
So, as far as this merger between Hp and Compaq is concerned, on side there was this strong determination of the Ceo, Fiorina and on the other side was the strong opposition from the enterprise owners. This opposition prolonged from the market including all the investors of the company. So, this practical division question was very preponderant inspecting the fact that it contained two of the most grand hardware companies in the world. There were a estimate of options like turn Management, Economic wise Management, and Organizational administration which could be considered to analyze the issue. But this case study can be solved best by a strategy wise analysis. (Hp-Compaq merger faces stiff opposition from shareholders stock prices fall again, 2001)
Strategic prognosis of the Case
Positive Aspects
A Ceo will always reconsider such a merger to be an opening to take a competing benefit over its rivals like Ibm as in this case and also be of some interest to the shareholders as well. The following are the strategies that are connected to this merger between Hp and Compaq:
* Having an eye over shareholders' value: If one sees this merger from the eyes of Fiorina, it would be inevitable that the shareholders have a lot to gain from it. The infer for the same is the increment in the operate of the market. So, even of the conditions were not favorable from the financial perspective, this truth would really make a lot of profits for the enterprise in the future.
* development of Markets: Two organizations get complex in mergers as they want to advance their market both on the domestic and the international level. Integration with a domestic enterprise doesn't need much exertion but when a enterprise merges internationally as in this case, a fascinating task is on head. A thorough situation scanning is essential before putting your feet in International arena. Here, the competitor for Hp was Compaq to a large degree, so this merger really required a lot of thinking. Organizations merge with the international companies in order to set up their brands first and let population know about what they are capable of and also what they eye in the future. This is the infer that after this merger the products of Compaq would also have the logo of Hp. Once the market is well-known, then Hp would not have to suffer the branding created by Compaq. They would be able to draw all the customers of Compaq as well.
* Propagated Efficiencies: Any enterprise by acquiring Other or by merging makes an exertion to add to its efficiencies by addition the operations and also having operate over it to the maximum extent. We can see that Hp would now have an increased set of employees. The only factor is that they would have to be controlled properly as they are of different organizational cultures. (Benefits of Mergers:, 2010)
* Allowances to use more resources: An improvised club of monetary resources, intellectual capital and raw materials offers a competing benefit to the companies. When such companies merge, many of the intellects come together and work towards a common mission to excel with financial profits to the company. Here, one can't deny the fact that even the top brains of Compaq would be taking part in forming the strategies of the enterprise in the future.
* administration of risks: If we particularly take an example of this case, Hp and Compaq entering into this merger can decrease the risk level they would have diversified enterprise opportunities. The options for development option of the supply chain also increase. Now even though Hp is a pioneer in inkjet orienting, it would not have to use the product based facility layout which is more expensive. It can carry on the risk of taking process based facility layout and make things cheaper. Manufacturing and Processing can now be done in various nations agreeing to the cost viability as the major issue.
* Listing potential: Even though Wall road and all the investors of the enterprise are against the merger, when Ipos are offered, a development will without fail be there because of the thriving earnings and turnover value which Hp would be development with this merger.
* essential political regulations: When organizations take a leap into other nations, they need to reconsider the different regulations in that country which administer the policies of the place. As Hp is already a pioneer in all the countries that Compaq used to do its business, this would not be of much difficulty for the company. The enterprise would only need to make inevitable minor regulations with the political parties of some countries where Compaq was thriving more than Hp.
* good Opportunities: When companies merge with Other company, later they can put up for sale as per as the needs of the company. This could also be done partially. If Hp feels that it would not need much of storehouse space it can sell the same at increased profits. It depends on either the enterprise would now be regarded a s a make to stock or a make to order company.
* Extra products, services, and facilities: Services get copyrights which enhances the level of trade. further storehouse services and distribution channels offer enterprise values. Here Hp can use all such values integrated with Compaq so as to growth its prospects. (Berry, 2010)
Negative Aspects
There are a estimate of mergers and acquisitions that fail before they really start to function. In the essential phase of implementation itself, the companies come to know that it would not be beneficial if they continue as a merger. This can occur in this merger between Hp and Compaq due to the following reasons.
Conversations are not implemented: Because of unlike cultures, ambitions and risk profiles; many of the deals are cancelled. As per as the reactions of the owners of Hp, this seems to be very likely. So, motivation amongst the employees is an very leading consideration in this case. This requires an extra exertion by the Ceo, Fiorina. This could also help her articulate her position in the company.
Legal Contemplations: Anti-competitive deals are often microscopic by the rules presiding over the competition rules in a country. This leads to out of order functioning of one enterprise and they try to separate from each other. A lot of unnecessary marketing failures get attached to these conditions. If this happens in this case, then all that money which went in publicizing the investment would go to be a waste. Moreover, even more would be required to re-promote as a singular entity. Even the packaging where the whole account from Compaq had the logo of Hp would have to be re-done, thus hampering the finance even further. (Broc Romanek, 2002)
Compatibility problems: Every enterprise runs on different platforms and ideas. Compatibility problems often occur because of synchronization issues. In It companies such as Hp and Compaq, many problems can take place because both the companies have worked on different strategies in the past. Now, it might not seem essential for the Hp administration to make changes as per as those from Compaq. Thus such problems have become of many concern these days.
Fiscal catastrophes: Both the companies after signing an bargain hope to have some return on the money they have put in to make this merger happen and also desire profitability and turnovers. If due to any reason, they are not able to attain that position, then they build a abhorrence sense towards each other and also start charging each other for the failure.
Human reserved supply Differences: Problems as a ensue of cultural dissimilarities, hospitality and hostility issues, and also other behavior connected issues can take apart the origin of the merger.
Lack of Determination: When organizations involve, they have plans in their minds, they have a vision set; but because of a range of problems as mentioned above, development of the combined enterprise to achieve its mission is delayed. Merged companies set the goal and when the goal is not closed due to some faults of any of the two; then both of them build a inevitable degree of hatred for each other. Also clashes can occur because of bias reactions. (William, 2008)
Risk administration failure: companies that are complex in mergers and acquisitions, become over inevitable that they are going to make a profit out of this decision. This can be seen as with Fiorina. In fact she can fight the whole world for that. When their self-confidence turns out into over-confidence then they fail. adequate risk administration methods should be adopted which would take care of the effects if the decision takes a downturn. These risk policies should rule fiscal, productions, marketing, manufacturing, and account and Hr risks connected with the merger.
Strategic Sharing
Marketing
Hp and Compaq would now have common channels as far as their buying is concerned. So, the benefits in this concern is that even for those materials which were initially of high cost for Hp would now be ready at a cheaper price. The end users are also likely to increase. Now, the enterprise can re frame its competing strategy where the many concern can be given to all time rivals Ibm. The advantages of this merger in the field of marketing can be seen in the case of shared branding, sales and service. Even the distribution policy is likely to be enhanced with Compaq playing its part. Now, the enterprise can look forward to cross selling, subsidization and also a reduced cost.
Operations
The leading benefit in this area is that in the location of raw material. Even the processing style would be same development the products and services synchronized with the ideas and also in development a decent operational strategy. As the philosophical and mechanical operate would also be in common, the operational strategy would now be to become the top most in the market. In this respect, the two companies would now have co-production, build and also location of staff. So, the operational strategy of Hp would now be to use the process based facility layout and function with the mentioned shared values.
Technology
The technical strategy of the enterprise can also be designed in common now. There is a disadvantage from the perspective of the differentiation that Hp had in the field of inkjet printers but the advantages are also plentiful. With a common product and process technology, the technological strategy of the merged enterprise would promote very prudent functioning. This can be done straight through a common research and development and designing team.
Buying
The buying strategy of the enterprise would also ensue a common mechanism. Here, the raw materials, machinery, and power would be common hence decreasing the cost once again. This can be done straight through a centralized mechanism with a lead purchaser retention common policies in mind. Now Hp would have to think with a similar attitude for both inkjet printers as well as personal computers. This is because the parameters for manufacturing would also run on equal grounds.
Infrastructure
This is the most leading part of the strategies that would be made after the merger. The companies would have common shareholders for providing the essential infrastructure. The capital source, administration style, and legislation would also be in common. So, the infrastructure strategies would have to take these things into account. This can be done by having a common accounting system. Hp does have an option to have a separate accounting principles for the products that it industry but that would only arouse an internal competition. So, the infrastructural benefits can be made straight through a common accounting, legal and human reserved supply system. This would ensure that the investment relations of the enterprise would improve. None of the Compaq investors would hesitate in development an investment if Hp follows a common strategy.
Hp would now have to ensure Other fact that with this merger they would be able to prove competitors to the gift target and those of competitors like Ibm as well. Even the operations and the output market needs to be above what exists at present. The enterprise needs to ensure that the corporate strategy that it uses is productive adequate to help such a future. The degree of diversification needs to be managed thoroughly as well. This is because; the products from the two companies have performed exceptionally well in the past. So, the most optimum degree of diversification is required under the context so that the enterprise is able to meet the demands of the customers. This has been challenged by the owners of Hp but needs to be carried by the Ceo Fiorina. (Bhattacharya, 2010)
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