—On the 3rd September 2001, Hewlett-Packard Company (NYSE: HWP) and Compaq Computer Corporation (NYSE: CPQ) announced a definitive merger agreement to create an $87 billion global technology leader. The aim of this paper is to analyze if Compaq and HP shareholders have benefited from such a merge. Using a modified two factor model, market capitalization and book to market value were found not to add significant value to the shareholders’ post-merger returns. Earnings per share (EPS) and the price earnings (P/E) ratio dropped in the year following the merger between the two entities, before eventually picking up in later years. While higher post-merger EPS suggest shareholders from the target firm tend to have benefited more than shareholders from the acquiring firm, the post-merger P/E tend to be higher for shareholders from the acquiring company.
—Book to market value, market capitalization, pre and post merger.
Ikhlaas Gurrib is with Canadian University of Dubai, Sheikh Zayed Road, PO Box 117781, Dubai, United Arab Emirates (tel.: 971-4709-6140; e-mail: email@example.com).
Cite: Ikhlaas Gurrib, "Do Shareholders Benefit From a Merger? The Case of Compaq and HP Merger," International Journal of Trade, Economics and Finance vol.6, no.1, pp. 53-57, 2015.