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Managerial Economics: Hewlett Packard and Compaq Computers

A recent merger of note is that of Hewlett Packard and Compaq Computers. When the merger was announced, it was widely criticized as not making 'economic sense.' Use the material in managerial economics to analyze the reasons for and against the merger, and to assess the performance of the consolidated company since its completion.

The merger continues to be in the news, and most recently the CEO of the merged company, Carly Fiorina, was relieved of her duties on February 9, 2005.

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The merger between HP and Compaq made absolute economic sense because it allowed to large companies in the computer peripheral industry to join hands together and exert greater control over the marketplace or become more competitive via combined market share, revenues and reach in the marketplace. The combined strength of individual entities was expected to result in significant cost and revenue related synergies in the merged entity, thereby resulting in improved operating margins and bottom line profitability for the merged entity. Further, a big chunk of savings was expected due to reduction in workforce.

In the extremely competitive computer peripheral industry, the merger was expected to result in significant competitive strength to the merged entity against players such as Dell and IBM. The combined manufacturing, sales and distribution and marketing strength of the combined entities would make merged entity and much more powerful player in the computing industry.

However, there were numerous reasons cited against the rationale of the merger. First of all, the differences in corporate culture of these two large companies would provide a significant challenge for the management in terms of integrating the employees in the merged entity. Further, as both the companies were struggling prior to the merger, many people did not find it a ...

Solution Summary

This solution discusses the pro's and con's of the merger in 833 words, with two news references.