The big get bigger (but maybe not smarter)
Despite many concerns, the new HP initially proved to be an ideal combination — at least for a while. A number of commentators thought the two companies, despite similar business models, had fundamental cultural differences. However, Compaq’s sales and marketing strategy took hold inside HP without much visible friction, and HP brought in enough complementary size to cover its weaknesses and enhance its strengths. As the undisputed PC-making champion of the world, Hewlett-Packard Company (NYSE:HPQ) actually became a better value to investors after the deal closed. In the five years that followed the merger, HP’s stock gained more than 160%, making it one of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)’s best performers through that time period.
Over a longer time frame, the deal’s value began to unravel. The emergence of mobile computing and the commoditization of PC hardware significantly undermined HP’s business model, which was little changed in 2012 from its focus in 2002. The company’s stock still held an advantage over the Dow 10 years later, although by this point it had shrunk to a 60% gain against the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)’s 30% gain — good, but hardly great. Investing in 2007, at the halfway point of the deal’s first decade, would have been disastrous. The Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI), essentially flat from 2007 to 2012, still vastly outperformed HP, which suffered a 40% decline as its earnings began to collapse.
The article Is the Dow at 5-Digit Levels for Good? originally appeared on Fool.com is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool recommends Procter & Gamble.
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