Mergers and Acquisitions | Managerial Economics

RUNNING HEAD: MANAGERIAL ECONOMICS
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Managerial Economics

Managerial Economics
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Mergers and Acquisitions
Hewlett Packard was founded in 1939 by Dave Packard and Bill Hewlett in California
and at the time of incorporation capital with the company was $538. Later on between 1999
and 2000, the company decided to expand and looking for different alternatives. In 2000, the
company opted for two options that were acquisitions and organic growth. On the other side,
Compaq was also distressed by its poor performance and looking for potential business
opportunities. Both the companies decided to come into a deal with the motive to become
next IBM. The structure of the merger was stock for stock and dealt close for $25 billion
with a 64% stake of HP and a 36% stake of Compaq (Tarba, Cooper, Sarala & Ahammad,
2016).
Some economic analysts criticized the merger and believed that the merger of both
companies created bigger problems in a bigger scenario. One of the analysts explained the
decision as [1+1=1.5 not 2]. But the management of HP justified it like that with this merger
computer industry demand and supply came to equilibrium because one player in the
oversupplied computer industry market had eliminated. It was also justified that the merger
leads to the elimination of redundant costs in shipping, marketing, and advertising. But on
the other side, shareholders and directors of HP combined a 5% vote against the deal
(Dykman, Davis & Lamb,2013).
The main motive of any merger is to increase the value of combined entities more
than the valuation of individual entities. There are many factors that need to take care at the
time of mergers that are revenue enhancement, operating economies, management position,
market power, and diversification. In a nutshell, considering and by analyzing all these