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Chapter 1 Introduction There is no more dramatic or controversial activity in corporate finance than the acquisition of one firm by another or the merger of two firms It is the stuff of which reporters dreams are made and it is also an embarrassing source of scandalRossS1996 A merger refers to the absorption of one firm by another The acquiring firm retains its name and its identity and it acquires all of the assets and liabilities of the acquired firm After a merger the acquired firm ceases to exist as a separate business entity In resent years more and more merger and acquisition happened for those big companies as a result of intense competition in the business world To maintain the competitive position in their respective industry merger and acquisition become suitable strategic alternative which would bring synergy to both companies Revenue enhancement cost reduction lower taxes and lower cost of capital can be the basic categories of possible sources of synergy The merger of Compaq and HP companies is a resent case which brings controversial discussion in the public media When Hewlett-Packard CEO Carleton S Fiorina and then-Compaq CEO Michael D Cpellas met with investors last fall to sell their controversial merger many comments present different opinions on this event In this case study it will focus on the pre-merger of HP and Compaq By looking insight of the whole process of the merger the motivation of the merger will be identified as well as its expected synergy resulting from merger Important analysis will be of whether the expected effects of the merger were a reasonable basis for going ahead with it at the time of the merger and the challenge facing the merger Chapter 2 Background of Compaq and HP companies 21 Compaq company profile before merger Compaq Computer Corporation is a company which manufactures designs and markets hardware software solutions
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