Case-Analysis-Hp-Compaq-Merger(B)

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5) Evaluate the deal terms The HP-Compaq Merger Deal Terms Summary Announcement Date 4-Sep-01 Name of the merged entity Hewlett Packard Chairman and CEO Carly Fiorina President Michael Capellas Ticker symbol change From HWP to HPQ Form of payment Exchange Ratio Stock 0.6325 HPQ shares to each Compaq Shareholder Ownership in merged company 64% - former HWP shareholders Ownership of Hewlett and Packard Families 36% - former CPQ shareholders 18.6% before merger 8.4% after merger Accounting Method Purchase Merger method Reverse Triangular Merger The HP and Compaq Merger Deal Design: Hewlett Compaq Packard Stock (cash for fractional share) Compaq Shareholders Stock Heloise Merger Corp The main part of the deal was its merger method i.e., Reverse-Triangular Merger. A subsidiary, Heloise Merger Corporation, created solely for merging with Compaq. This resulted in tax- free reorganization in which HP would control all of Compaq’s assets through a wholly owned subsidiary, thereby limiting HP’s exposure to Compaq’s liabilities. 8|Page 6) Evaluate the exchange ratio and accretion/ dilution impact? The final Exchange Ratio 0.6325 HPQ shares per Compaq share Exchange ratio implied by the market as on 31 Aug, 2001 0.5356 HPQ shares per Compaq share Exchange ratio implied by the 12 month market performance of HP and Compaq stocks 0.598 HPQ shares per Compaq share Period ending Aug 31 2001 31-Aug-01 3 month average 6 month average 12 month average Market Price for Compaq shares 12.35 14.20 Market Price of Compaq shares 23.21 25.49 Average Exchange ratio 0.532 0.557 Implied Acquisition Premium paid by HP (in %) 18.9 13.7 15.72 27.58 0.570 8.2 19.40 32.45 0.598 6.1 The exchange ratio decided for

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