The Merger of Hewlett-Packard and Compaq (A): Strategy and Valuation

Case Solution

Robert F. Bruner, Anna Buchanan
Darden School of Business ()

In 2002, an asset manager considered how to vote his stake in HewlettPackard on the proposal to merge with Compaq. Case (A) contains information on the strategic and financial rationale for the merger. Includes comprehensive reviews from HP and Compaq, as well as detailed summaries from prominent advocates (Carly Fiorina) and critics (Walter Hewlett). The students’ tasks are to evaluate the possible synergies in the deal and critically question the strategic arguments (pros and cons). Case (B) provides a detailed examination of the terms of the proposed transaction. It is the students’ job to critically question the specific design of the deal and its effects on shareholders. Of particular interest are the impact on earnings per share (i.e. EPS dilution), governance of the new company, and whether it is in fact a merger of equals. Case (C) describes the outcome of the proxy competition. Here the students’ task is to evaluate the strategies of both parties in communication with stakeholders and in argumentation. The objectives of the case module are to familiarize students with the mechanics of proxy competencies, practice assessment and strategic analysis skills, and critically evaluate the terms of the contract. Cases (A) and (B) can be taught in consecutive classes or in one class. Case (C) is usually delivered last, followed by a short discussion.

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