Mother Of All Mergers

The most stunning news of this week--probably of this decade too--is the bombshell that Compaq Computer Corporation, the largest PC company in the world with revenues amounting to over $ 40 billion, was being taken over by $ 47 billion Hewlett Packard, the numero uno vendor as far as peripherals are concerned.

The combined entity with total revenues amounting to $ 87.4 billion, operating earnings at $ 3.9 billion and assets amounting to $ 56.4 billion, will be almost equal to the size of IBM.

The news was stunning because everything was held in secret and till the time Compaq and HP actually announced the conclusion of the deal, nobody had even an inkling that something was going on between the two. And as expected, the news has literally stunned the entire IT community throughout the world for whom this news has come as a bolt from blue.

Perhaps the most interesting part of the whole deal which has probably escaped the eye of most of the people is that at $ 25 billion, HP has paid a very small amount of money considering the fact that Compaq is not exactly a minnow. In fact, just about a three years back, Compaq had paid $ 9.6 to acquire Digital and around a year before that $ 4 billion to acquire Tandem. Even in terms of the product range, Tandem and Digital were nowhere as compared to Compaq which has a finger in every pie with its product range spanning from entry level notebooks to very high-end servers.

The combined entity will offer the industry's most complete set of IT products and services for both businesses and consumers. The combined company will be worldwide number one in servers, access devices (PCs and hand-helds) and imaging and printing, as well as leading revenue positions in services, storage and management software.

The merger is expected to generate cost synergies reaching approximately $ 2.5 billion annually and drive a significantly improved cost structure. The combined entity would have operations in more than 160 countries and more than 1.5 lakh employees worldwide.

In India, both HP and Compaq have in the recent past set up manufacturing facilities for desktops and servers in Bangalore. Besides, both have an enviable and a very strong channel network. With a strong presence in the branded PC market, any further consolidation in these areas may help in the brand image of both. Which in turn is certain to increase the market share of the combined entity considerably.