Analyzing the Merger of Hewlett-Packard and Compaq

Overview

In this chapter, we described how firms seek to merge with and acquire other companies. In particular, firms take careful steps to value the other enterprise, be aware of legal/regulatory roadblocks that may exist, and be mindful of synergies that may blossom out of a merger/acquisition. On September 4, 2001, Hewlett-Packard (HWP) announced the planned acquisition of Compaq Computers (CPQ). On May 6, 2002, the deal was completed and the new Hewlett-Packard Company changed its ticker to HPQ, to reflect Compaq's contribution to its rich history. This exercise will use financial data to observe how the acquisition of Compaq has affected Hewlett-Packard's performance.

First, download Compaq's Full Company Report. The last year of reporting ended on 12/31/2001. In addition, download Compaq's price charts for the year leading up to the announcement, the month leading up to the announcement, the two weeks around the announcement, and for the period between the announcement and merger completion.

Discussion Questions:

1. Access an interactive chart of Hewlett-Packard's stock price performance in the year leading up to the announcement of the merger (using its new ticker symbol). You can generate charts by clicking on "Interactive Chart" (next to the "Price Chart") from the Overview page. In "Time Frame", request a "custom" stock price chart from 9/4/2000 to 9/4/2001 for Hewlett-Packard. After entering the dates, you must click on "Draw" for the chart to be redrawn. Also use the corresponding price chart for Compaq in the year leading up to the announcement. Are there any noticeable trends? What implications do they hold?

2. Request a new Hewlett-Packard price chart for the month leading up to the announcement 8/4/2001 to 9/4/2001. Notice that August 4th is a Saturday, so the chart will actually show stock prices from 8/6/2001. Also use the corresponding Compaq chart. Are any trends noticeable in the month running up to the announcement? Any price runups or rundowns? Could information about the merger possibly have leaked before the announcement? What reasons might explain any trends?

3. Now, request a Hewlett-Packard price chart for the two weeks surrounding the announcement, from 8/28/2001 to 9/11/2001. Also use the corresponding Compaq chart. Do any trends exist in the stock price? What about volume traded?

4. Request a Hewlett-Packard price chart for the period between the announcement and the completion of the merger, from 9/4/2001 to 5/6/2002. Also use the corresponding Compaq chart. What trends exist? What are some reasons for these trends?

5. Request a price chart of Hewlett-Packard's performance from the completion of the merger to the present. How has the company done relative to the S&P 500? Does it seem that the merger added value to Hewlett-Packard?

6. One of the key motives for this merger was the expected synergies of Hewlett-Packard and Compaq. Access Hewlett-Packard's Full Company Report, by clicking OVERVIEW > FULL REPORTS > THOMSON FULL REPORTS > FULL COMPANY REPORT. Scroll down to the "Asset Utilization" section of the "Annual Financial Ratios." Comparing Hewlett-Packard and Compaq's asset effectiveness before the merger, and Hewlett's performance after the merger, would you conclude that acquiring Compaq had a positive or negative impact on asset utilization?

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