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Unformatted text preview: Compaq had been trying to
increase its presence in the services market. Over 55 percent of Compaq’s 68,000 employees
worked in its services division. The company aimed to derive 30 percent of its total revenue
from services. To achieve this growth, Compaq budgeted $500 million for acquisitions of small
and mid-sized service companies.
Some analysts were concerned about the nature of Compaq’s current services business. One
estimated that between 25 and 30 percent of Compaq’s services business was derived from
supporting older and declining Tandem and Alpha products.11 The highest fees and margins
were earned in the consulting and outsourcing segments of the service industry. However, much
of HP and Compaq services had been focused on providing product support, which was a lowermargin business. (See Exhibit 1 for current selected HP financial information, and selected
financial and market data for HP and Compaq prior to the time of the merger.)
From the Compaq Side
The call must have gone well, because soon Fiorina and Capellas were meeting face-to-face to
discuss a merger. Initially, the group discussing the merger was limited to four executives:
Fiorina, Capellas, HP’s Duane Zitzner, who at the time headed the company’s PC business, and
Shane Robison, then Compaq’s senior vice president and chief technology officer of Strategy
Robison discussed the reasons Compaq had been willing to surrender its independence: “Market
share and scale matters; and size matters; it’s basically a portfolio play. As we looked at the two
companies, we found that while we appeared to be competing, our strengths and our weaknesses
were perfectly complementary. So it made a really nice merger strategy.”12
A merger with HP was not the only option Compaq considered. Robison led Compaq’s review
of other strategic possibilities, but his analysis, like Fiorina’s, pointed to a HP-Compaq merger.
Robison recalled: “We considered pretty much everything. I had a proc...
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- Spring '14