5 billion at the time dec had 13 billion in annual

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Unformatted text preview: s the points Hewlett made above] are based on a static and narrow view of HP and the industry, selectively ignore synergies, offer no alternatives and rely on faulty financial assumptions and analyses. Other critics, besides Hewlett, pointed out that neither HP nor Compaq had any experience integrating large mergers. The biggest merger accomplished in the past by either company had been Compaq’s acquisition of DEC in 1998 for $8.5 billion. At the time, DEC had $13 billion in annual revenues, 53 percent of Compaq’s annual revenue. DEC had been a leader in minicomputers, producing the very successful VAX/VMS line. However PCs and networking supplanted minicomputers by the time Compaq acquired the company, and its most valuable pieces had been its installed base of customers, its service arm and its Alpha chip. Compaq did not do much with Alpha over the years and faced rising pressure from industry standard competitors. Similarly it was unable to convert much of DEC’s installed base to Compaq products. As mentioned above, the merger had been widely viewed as a failure and cost the job of Compaq’s CEO at the time. While HP did not have the same troubled history with acquisitions, its record was not terrific. It acquired RISC workstation maker Apollo in 1989 only to see its share of the market immediately decline against Sun Microsystems and others. In 1997, HP acquired VeriFone, a maker of electronic point-of-sale payment terminals, but sold off the company in 1999. While fighting the proxy battle for shareholder approval of its merger with Compaq, HP management issued several projections of anticipated growth for the various segments of the resulting combined company. These forecasts projected revenue growth and operating margins in key businesses (Exhibit 3). These projections could be expected to strongly impact the external view of the validity of the strategic logic driving the acquisition. Attaining them would affect the future share price of the combined companies and the perceived eff...
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