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Unformatted text preview: . Services were becoming increasingly important sources of revenue for other
technology companies. For example, by 2001, IBM obtained one-third of its revenue from its
Global Services arm. In 1998, HP’s once arch-competitor Compaq bought Digital Equipment
5 The Trustees of the William R. Hewlett Revocable Trust, a group that controlled a large block of HP shares and opposed the
merger, cited research from Sanford C. Bernstein in October 1999, which found that a survey of over 7,000 merger and
acquisition transactions between 1992 and 1999 revealed that acquirers underperformed by 5 percent per annum in the three
years after the transaction and 11 percent in the first two years. The research also found that technology transactions generally
fared worse, stock deals were more destructive to returns than cash deals and that the larger the deal, the greater the odds of
failure. Source: “Report to the Trustees of the William R. Hewlett Revocable Trust on the Proposed Merger of HewlettPackard and Compaq,” undated but made public at the time of the proxy fight.
One year ahead of FY 2004, HP had already achieved $3.5 billion in cost savings. This document is authorized for use by Xiaolei Cong, from 11/30/2012 to 2/28/2013, in the course:
MGMT 237: 001 Management of Technology - Chaudhuri (Spring 2013), University of Pennsylvania.
Any unauthorized use or reproduction of this document is strictly prohibited. HP and Compaq Combined: In Search of Scale and Scope, SM-130 p. 3 (DEC) for its services business, saying, “We put tremendous value on the customer relationships
Digital has cultivated over the past 40 years. We are committed to supporting these key
customer relationships by investing in Digital’s strategic assets, particularly its worldwide
service organization...”7 But the deal proved costly for Compaq. The company lost more money
in the three years following the merger than in its entire previous history: more than $2 billion by
the end of 2000. Compaq al...
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