4.

POSSIBLE MERGER OR ACQUISITION OF

ASUSTEK

COMPANY PROFILE

ASUS is a Taiwanese multinational computer hardware and electronics company

headquartered in Beitou District, Taipei, Taiwan. Its products include desktops, laptops,
notebooks, mobile phones, networking equipment, monitors, projectors, motherboards,
wearables, servers, workstations, and tablet PCs.

Asus is the world's 4th-largest PC vendor by 2015 unit sales. Previously, in August 2006,
Asus had announced a joint venture with Gigabyte Technology, a motherboard vendor where
in they had declared a 51% stake of shares to be held by Gigabyte and the rest by Asus. But
later, they called off the plan of forming this joint venture blaming concerns from customer’s
suppliers and vendors. Hence, this joint venture failed to happen.

SWOT ANALYSIS OF ASUS

1
REASONS FOR THE MERGER

To incrc•ase the Markc•t Shares. As of 2015, the market share of Hewlett and Packard is 17.28%.
Back in 2001, when the merger of HP and Compaq was announced, they anticipated that they
would result in an organization that would dominate their rivals Dell and IBM. Currently, IBM has
been literally washed away from the scene post mid- 2000s. There are new and upcoming
competitors especially from the Asian belt, the Chinese and Japanese companies. Asus has a
market share of 7.3%. If HP decides to merger with Asus, they would dominate the global PC
markets.

Next Worth.’ The brand value of HP as of May 2016 is $13.8 Billion. It’s one of the World’s most
valuable companies according to the Forbes listings. The current worth of Asus is $6.6 billion. HP
is a world PC tycoon and Asus is in comparison a new but a successful upcoming company
especially in the Asian markets. With net worth as high as these two; the companies will be
sufficient in terms of funding and raising capital for development.

Wider Reach. With HP headquartered in California and Asus is Taiwan, which is an East Asian
state, the dynamics although might not match in the beginning but sooner, the company will be
able to take over the global markets. This way, the Asian markets will be more inclined to buy HP
products. Data from the International Data Corporation (IDC) show that South Korea-based
Samsung is market leader in Indonesia's PC and smartphones market controlling a 24.8 percent
share, followed by Taiwan-based Asus with a 15.9 percent market share. This shows how well
Asus is doing in the Asian markets.

Sourcing becomes convenient hence co.sts are ctit down. Its in-house manufacturing of hardware
components has been Asus’s USP in keeping costs low in manufacture of products. Motherboards
of Asus are one of the best that are available in the current market. Whether it is for gaming or
designing hi-tech software, motherboards are the crux of pcs and smartphones. If Asus merges
with the American brand, HP, sourcing of materials becomes more convenient and much less
expensive.

Eliminates Competition.’ This M&A deal will allow the HP to eliminate present and future
competition and gain a larger market share in its product’s market. ASUS currently has a good
amount of market share considering it is a small company with about 10% market share in
Laptops
and 2.5% market share in mobile phones. The acquisition will result in a larger market for HP as
well as it will get a chance to expand its presence over other electronic products such a mobile
phone in which again ASUS has good experience as well as resources. Thus eliminating
competition.

Tax and Operational E[]iciency Advantagc•s. If one of the firms involved in the merger has
previously sustained net losses, those losses can be offset against the profits of the firm that it has
merged with, a significant benefit to the newly merged entity. Until recently, HP Australia was in
losses where in the figure adds to almost half a billion dollars in the three years prior to the 12
months ended October 31 2015. The company last made a profit locally in 2011. The losses can
be offset if the merger takes place between HP and Asus.

Product diversification- Diversification is when company enters a new market with different
products order to grow. HP today has not at all entered the smartphone market. Smartphone
market is considered to be one of the fastest growing market as more and more people are moving
from laptops and desktop computers to smartphone because of ease of use. According to data
released in 2015, Counterpoint Research data showed that the Asus had seen the highest growth of
500% increase in smartphone shipments. So HP by acquiring Asus can use its high growth to enter
the smartphone market. It will also help Asus as it can use the resources available with HP to
come up with newer and better smartphones with some cost advantage.

Geographical Diversification and Investor ConfiHc•nce. HP is a company based in American

continent whereas ASUS is based in Asian continent. Both the continents have their own pros and
cons which can result in their betterment. American continent is known for its advancement in the
technology, which makes it easier for the companies that are based in America to have access to
the latest technology at competitive prices. Also the government policies make the acquisition for
such a company easier. ASUS is based in Taiwan, a country where labour is readily available at
cheap prices. This can help the Merged company to drastically reduce the manufacturing prices as
again before the merger, the companies from outside Taiwan could utilise their resources but to
only a certain limit and this merger will exponentially increase that limit. Also Asus operates in
around 50 service sites across 32 countries and has over 400 service partners worldwide, which is
again a boon for the merger. Therefore this geographical diversification will do more good than
harm.
This design will result in smoothening out of the earnings of the merged company, which over
the long term will balance out the stock price of the company, giving conservative investors more
confidence in investing in the company.

Innovation: Asus has a strong R&D department which focuses on technology advancement and
product building.

Integration in Mantifacttiring Procc•sses.’ HP’s product line tends to be in the lower price
bracket, as well as lower quality products since they only manufacture their monitors. Their
merger with ASUS would mean that not only do they have higher quality products at all price
ranges which helps them cater to all audiences, but they also have vertical integration in their
manufacturing process since ASUS makes their own motherboards, graphic cards and monitors.

CHALLENGES OF THE MERGER

Cultural Difference.s. Most mergers fail due to the difference between the cultures of both
organizations. Since the organization philosophies of ASUS and HP are different, it may create
issues in integration. Hewlett-Packard employees tend to focus on making profits as part of the
company’s values and principles and is mainly results-driven while ASUS focuses on delivering
quality products and Employees are encouraged to strive for technological and aesthetic perfection
in everything they do. Merger training is often overlooked and can present obstacles if not
implemented promptly.

Employee Retention Challenges. During mergers and acquisitions, employee retention can be a
challenge, as many believe it can be a threat. Inherently, many mergers and acquisitions (M&As)
deals have retention issues, which result from negative attitudes felt by employees. This can
include uncertainty about the future of the organization’s direction, job security, perceptions of
lack of leadership credibility and feelings of confusion due to lack of communication. Also, the
new company tends to lay-off a large amount of current employee which lowers employee morale
as well as makes it difficult for them to accept the merger.

Working in a Glohal Environment.’ Many mergers and acquisitions today involve companies
headquartered in two different countries. Since HP headquarters are in Palo Alto, California and
ASUS is a company from Taipei, Taiwan, it can complicate the transfer of best practices, since
managers generally assume that their knowledge bases apply universally. They do not always take
into consideration that performance drivers vary from culture to culture.

Ovei•lapping Product Lines.’ Since both HP and ASUS have similar products such as their mobile
phones and laptops, it creates products that have similar specifications and ultimately overlap both
their product lines. This creates a huge challenge for the combined company as not only do they
lose out on opportunity due to these products, some of these products are discontinued.