Answer To: FIN80002 Business and Entity Valuations Semester 2 2020 Research Assignment 1 1. Research Assignment...
Sarabjeet answered on Sep 06 2021
TOPIC: Hewlett-Packard-Compaq
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Contents
Introduction 3
Question 1: 3
Question 2: 6
Question 3: 7
Question 4: 8
References 12
Introduction
Hewlett-Packard, commonly abbreviated as Hewlett-Packard Firm, is aUnited Stateinternational information and technology company head office in Palo Alto, California that develops and offers a variety of hardware, software, as well as related services for small consumers. Medium Enterprisesor large enterprises, including clients from the government, health also in the education sectors. The company was originated in 1939 by David Packard and Bill Hewlett in a single garage in Palo Alto, California, and initially produced a series of electronic testing and measuring equipment. HP’s garage at 367 Addison Avenue is currently represented as an official historic landscape in California and is marked with a memorial plaque calling it “Silicon Valley Birthplace”.
Question 1:
Assuming that the new HP together can solve a specific problem, we will support the Fiorina’s proposal to purchase Compaq, as the following profits will outweigh the disadvantages.
Pros
1. Computer: The integration will improve the economy as well as the innovation of the computer business to contest with Dell’s industry leader.
2. Storage and Server:The combination of server product lines and storage will give the new HP a big boost as it competes for product categories as well as technologies with IBM.
3. IT Services: The mutual company will have 66,000 architects in 162nations. HP will lead to critical services and multi-vendor support.
4. Financial benefits: A joint venture can eliminate redundant groups and reduce marketing, advertising, and transportation costs. By mid-2004, the merger is expected to save $ 2.5 billion in annual costs.
Cons
1. HP’s business portfolio is deteriorating due to increased investment in the malicious computer business.
2. There are a lot of duplicate units here that don’t have the added benefit.
3. HP management has experience in large-scale combined operations.
4. The combined balance will be worse than the independent HP.
The acquisition will reduce the company’s overall revenue slightly from IBM. In short, the new HP can compete with IBM and Dell in all types of products.Fiorina’s proposal is very interesting and seems to be a successful strategy to achieve based on assumptions and predictable results of business integration; integration into HP benefits(B. Lee, 2015).The merger will lead to the creation of larger companies and give HP a competitive benefit over competitors such as IBM and Dell, as only Compaqand HP cannot compete with their direct competitors. In addition, the merger will benefit its shareholders.On the other hand, the merger of HP and Compaq will allow the joint venture to offer integrated services and products, and the addition of Compaq products will increase HP’s product portfolio(McNally, Durmuşoğlu and Calantone, 2012). At the same time, the combined workforce increases HP’s power and capability in customer account coverage; therefore, all of the above advantages enhance the competitiveness of the consolidated company.In addition, the merger will be implemented by a company that will be a full-fledged service technology company and will be able to sell PCs, printers, and related services. In addition, the merger will allow HP to take advantage of its established distribution network and launch new distribution channels to increase sales revenue.
At the same time, consolidation leads to larger companies, and large-scale production reduces the scale of production costs, thereby providing economic benefits to the scale. In addition, the merger brings together a variety of skills and experience to improve server solutions and support services and after-sales services. This brings benefits in customer loyalty and customer retention.Synergy saves $ 2.5 billion in annual costs, increasing profits and value per share from $ 5 to $ 9. In addition, the increased profit creates more cash flow, which HP can use to invest in other projects that require investment. However, this merger will have some random drawbacks that may interfere with the merit of the joint proposal.The merger could lead to a conflict of interest for shareholders, as HP is currently involved in the printing and photography business(Burgelman, 2016). The print and image business market is also growing with growth potential. On the other hand, the personal computer solution that Compaq buys and sells has no growth potential and even the market is in a phase of decline. This makes computer trading less attractive to investors, so the merger adds these two products to the portfolio, which reduces the profitability and attractiveness of joint ventures, and HP shareholders will not be interested in mergers because it reduces their investment value.In addition, mergers can lead to the inclusion of some unwanted or low-income sectors in the portfolio of HP products, destroying their integration with other HP business units. Therefore, mergers create integration problems.Moreover, neither HP nor Compaq’s management has experience in performing such a large-scale combination(Davidson, 2004).
This makes it difficult to execute and complete the merged process.However, the merger of Hewlett-Packard and Compaq will bring the combined revenue higher than its competitors, but it will still bring the combined revenue closer to the revenue of IBM and Dell. In addition, the joint venture will increase market share and market experience and personal computer servers, thereby competing in their markets with IBM and Dell (Dibb,2010).
Question 2:
As noted in Question 1, Fiorina was hired for the management team to implement an “e-service”...