Presentation Topics

The Hewlett-Packard( hp) and Compaq

Merger
 About Hp
Hewlett-Packard Company -- a leading global provider of
computing and imaging solutions and services -- is focused
on making technology and its benefits accessible to
all. HP had total revenue from continuing operations of
$48.8 billion in its 2000 fiscal year

• Well-respected systems vendor

• Smaller, but worthy competitor to IBM
• Competes mainly in the hardware business with desktops
and servers
 About Compaq
Compaq Computer Corporation is a leading global provider
of enterprise technology and solutions. Compaq designs,
develops, manufactures and markets hardware, software,
solutions and services, including industry-leading
enterprise storage and computing solutions.

• Compaq sales leveled off with added competition from

Dell
• Compaq was best known for its personal computer
offerings
 Merger Dates
• September 4, 2001 - HP and Compaq
announced a definitive merger agreement
to create an $87 billion global technology
leader.
• Eights months later on May 3, 2002 HP
and Compaq officially merge
 Reasons for Merger

• To compete with IBM and other companies

• The combined services business will have
65,000 services professionals vs. 100,000-
plus for IBM
• Reduce Costs
• Generate cost synergies reaching $2.5
billion annually improved cost structure.
 Reasons for Merger
• Expected annual revenue of $87.4 billion Neck
and neck with IBM in Tech company
• Cross selling to both companies’ customers
• Build better internet systems with Compaq’s
Technology.
• Top market share in printers, PCs, and storage
• Second-largest server business and third-
largest tech-services organization
.
 Transaction Summary
Structure Stock-for-stock merger

Exchange Ratio 0.6325 of an HP share per

Compaq share

Current Value Approximately $25 billion

Ownership HP shareholders 64%; Compaq

shareholders 36%

Accounting Purchase

Expected Closing First half of 2002

 Benefits Of Merger
• Creates an $87 billion global technology leader, with the
industry's most complete set of IT products and services
for both businesses and consumers.
• New HP would be the #1 global player in servers,
imaging & printing, and access devices (PCs & hand-
helds), as well as Top 3 player in IT services, storage
and management software.
• The combination furthers each company's commitment
to open, market-unifying systems and architectures and
aggressive direct and channel distribution models.
• Combined company can create substantial shareowner
value through significant cost structure improvements
and access to new growth opportunities.
 Benefits Of Merger
• Transaction expected to be substantially accretive to pro
forma EPS in first full year of combined operations.
• The merger is expected to generate cost synergies of
approximately $2.0 billion in fiscal 2003, the first full year
of operations; fully realized synergies are expected to
reach a run rate of approximately $2.5 billion by mid-
fiscal 2004.
• New HP would have operations in more than 160
countries and over 145,000 employees.
 Total Earnings In a Chart
Key Facts HP Compaq Pro Forma
(last 4 qtrs): Combined

Total $47.0 billion $40.4 billion $87.4 billion

Revenues

Assets $32.4 billion $23.9 billion $56.4 billion

Operating $2.1 billion $1.9 billion $3.9 billion

Earnings
 SWOT Analysis

Strengths
 Compaq-Server category and overall storage
 HP High End Storage
 Strong Brand recognition

Weakness
 Developing a direct distribution model
 Consulting and outsourcing
 Compaq- Printers
 SWOT Analysis

Opportunities
 Merger could improve economics & Innovation
 Market growth in IT Services

Threats
 Dell increases pressure in the low-end server market
 IBM, Dell and new entrants erode more market share
 Recommendation
• After paying $5.4 billion to finance a
merger with Digital Equipment, Compaq
eliminated overlap by cutting thousands of
jobs worldwide
• The combined services business will have
65,000 services professionals vs.
100,000-plus for IBM
• This Merger created a strong Brand
• This merger increase the growth of IT
Services
 Recommendation
• This Merger Improve Financial
Performance
• Generate cost synergies reaching $2.5
billion annually improved cost structure.
Thank you