The run-up to the merger has been bitter, to say the least. Combined with the technology sector’s history of failed mergers, could it still succeed? Possibly. The fighting has made fear of failure into a serious motivation for management, while also highlighting the potential pitfalls. However, competing with Dell, Sun and IBM will still not be easy.
While votes on the HP/Compaq merger are still being counted, the ‘yes’ camp seems to have won.
Six months on from HP and Compaq’s initial merger announcement to the SEC, and amid massive fighting between the ‘yes’ and ‘no’ camps, shareholders have completed their voting on the proposed deal. While votes are still being counted, the merger seems to have won by a slim margin.
CEO Carly Fiorina believes HP must broaden and deepen its product sets to compete with IBM, as companies look to source IT infrastructure, applications and services from a decreasing number of suppliers. But pointing at studies of previous failed mergers, opponents such as Walter Hewlett say that HP would do better to focus on its dominant markets of imaging and printing.
Both sides’ points are valid. But now Ms Fiorina appears to have won, can the merger work? An advantage of the controversy is that fear of failure will be even more important a motivation than normal: collapse or poor execution would certainly cost Ms Fiorina and her Compaq counterpart Michael Capellas their jobs, as well as slashing shareholder value.
The fervent debate also means that many of the potential pitfalls should already have been unearthed and contingencies can be planned for. This bodes well for a successful integration, as management is unlikely to be able to steamroller through reform and restructuring.
Much of the deal’s overall success will be measured in terms of HP/Compaq’s competitors. If Dell continues to sell commodity PCs cheaper than its rivals, the deal’s PC-level aims will fail. If Sun’s proprietary technologies maintain sufficient technical differentiation that clients perceive value in their solutions, the mid-range server aims will fail.
In services, meanwhile, IBM is unlikely to change its successful strategy. It would take at least three years for the new HP to gain sufficient momentum in consulting and services to begin to rival IBM’s Global Services division.
Times will certainly be tough for a new HP, but a successful brand re-invention and improved internal economics could mean that the potential merger mayhem is avoided and perhaps a magnificent merger results. If the relevant economies of scale translate into improved product competitiveness, HP may be the next Big Blue.