I’m really struck, as I wrote earlier this week, at how different, and I mean night and day different, the Dell/EMC merger is from the HP/Compaq merger. If I had a stronger term than night and day, I’d use it. So let me walk you through the differences in these two massive deals.https://o1.qnsr.com/log/p.gif?;n=203;c=204663295;s=11915;x=7936;f=201904081034270;u=j;z=TIMESTAMP;a=20410779;e=iHP/Compaq Merger
From the start, the HP/Compaq merger looked like a train wreck. The goal appeared to be to provide a distraction for then-CEO Carly Fiorina of HP, a new and apparently poorly mentored CEO who was nearly constantly missing market expectations. Speculation on her departure was increasing and, initially, when a board member suggested the merger, she said no. But things just weren’t working and she became convinced that buying Compaq was her way forward. However, the board members who represented the Hewlett and Packard families thought it was idiotic and insane. You see, Compaq and HP had a lot of overlap but both firms were being run by turnaround CEOs, which means neither had a strong long-term strategy. And on the Compaq side, they had recently gone into a huge merger themselves with DEC that wasn’t complete and had turned into a train wreck itself, It was a huge mess.
The board members then began a massive proxy fight to kill the merger to add to the difficulty. The interesting thing about this is that, rather than killing the deal, it actually made it work. On a scale of 1 to 10, where a very difficult merger was a 10, this was arguably a 20. They didn’t even have a plan initially. But the huge investors that had to back one side or the other during the proxy fight started to ask for a plan. This forced HP to actually develop a merger plan; had it not done so, the merger would have failed outright. It is kind of ironic that the only reason that the merger actually completed was because of the proxy fight started by the folks who didn’t want it to happen. And the guy who drove the plan and who both the board and the financial analyst firms believed in wasn’t Fiorina, it was Michael Capellas, the ex-CEO of Compaq. Fiorina forced him out as quickly as she could. (That doesn’t bode well for her current running mate.)
This was a massive integration merger, which means the units were slammed together, eventually resulting in some of the largest layoffs in the history of tech. This all contributed significantly to the eventual firing of Fiorina and the following revolving door of HP CEOs. You see, the HP/Compaq merger should never have been done; the two firms were in the midst of turnarounds and neither had a clear idea where it wanted to go. Getting together didn’t get them there and both CEOs lost their jobs unexpectedly, which is never a good sign.
Both Dell and EMC are in relatively good shape, and neither is undergoing a turnaround. EMC starts out as more of an umbrella company, which means the divisions are well defined under a corporate executive management umbrella. The one problem that EMC was having was a forced breakup so that corporate raiders, also called “activist investors,” could pump the stock value prior to divesting the stock. Dell recently went private, which was an incredibly difficult process, but the benefits of better customer focus and stronger strategic execution had EMC envious. EMC CEO Joe Tucci also needed a qualified successor because it was time for him to retire, but EMC’s board hadn’t found a viable candidate. Finally, HP was also trying to buy EMC but HP’s acquisition history, particularly with the Compaq deal, and massive overlap made it an unattractive partner and left the outspoken large investors in place.
So, in contrast, the reason behind the merger for HP was to spike HP’s market share and maybe save the CEO’s job; the reason for the merger for Dell and EMC was to take EMC private, give it the strategic advantages Dell enjoyed, and give it a new qualified and experienced CEO.
On process, EMC has presented Howard Elias and Dell has presented Rory Read at the front end to build an integration process. Both have managed other large mergers. Elias was part of a number of large HP mergers and Read had done a large number of IBM mergers. In addition, both Dell and EMC had mature merger processes that wrapped these two experts. The integration process was outside in, so the process is based on the analysis of customer data; the result is better focused on customer needs and requirements.
Rather than a rushed plan to address the needs of large investors as part of an unplanned proxy fight, Dell put in place focused expert executives to build the merger plan around customer requirements. There is no conflict between the two CEOs. Dell is simply a planned replacement, allowing Tucci to finally retire. The architects of the merger will stay on to help fully execute it. The seller, not the buyer, largely drove this deal and that means it wants to be acquired at least as much as Dell wants to acquire it.
Wrapping Up: Good Mergers Have Good Goals
One interesting bit of trivia is that Michael Dell never wanted to do a big merger; he thought they were stupid. And, generally, he is right. Most big ones fail, largely because of a combination of problems between the companies, poorly stated and understood goals, and horrid execution. Dell has addressed most of these problems and this is the cleanest large merger I’ve ever seen. One other difference should be pointed out, though. For the most part, Compaq and HP were competitors driven together by desperation, not mutual respect.
Dell and EMC used to partner and broke up because EMC wouldn’t do what Dell wanted done (build storage specifically for the mid-market). Tucci, who remained friends with Dell, would talk about this with regret nearly every year I’ve seen him. The two firms wanted to be together but one screwed up and they fell apart. The story kind of reminds me of a good romance. Sometimes you may not be ready to marry the right person when you first date them, and make a mistake that forces a breakup, but when given a second chance, the foundation is there for something magical.
Whether you buy that last idea or not, the reality is that you can do any size merger if the goals, execution and follow-through are right, and when the goal is to better serve the customer, not save a CEO’s job or make investors happy.
One final thing: One thing Dell learned that Fiorina didn’t is that when you buy something, you should figure out what makes it special and valuable and not mess with that. Part of the new federation is to assure that Dell doesn’t muck up EMC and EMC doesn’t muck up Dell. This same type of goal during the HP/Compaq merger was to make Compaq look and act like HP, which effectively destroyed whatever made them unique and different.
In the end, HP/Compaq was a lesson on how to not do a large merger. Dell/EMC should be a lesson in how to do one. And that should net out the differences between them.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+