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When Carly Fiorina says Hewlett-Packard "revenues went up, that's because she bought Compaq. It was a terrible deal."

Donald Trump on Wednesday, September 16th, 2015 in the second GOP primary debate

Fact-checking Donald Trump's attack on Carly Fiorina's record at Hewlett-Packard

Carly Fiorina, then-chief executive of Hewlett-Packard, rings a bell to virtually open the New York Stock Exchange on May 6, 2002, after the company changed its ticker symbol from HWP to HPQ to reflect its acquisition of Compaq Computer Corp. (AP Photo)

The second GOP primary debate became a boardroom brawl at one point, with Donald Trump and Carly Fiorina attacking each other's self-tauted records as successful business executives.

Fiorina rattled off her list of accomplishments as the head of Hewlett-Packard -- doubled the size of the company, quadrupled growth and cash flow, tripled its rate of innovation -- only to be summarily dismissed by Trump.

"The company is a disaster and continues to be a disaster," Trump said on Sept. 16. "When Carly says the revenues went up, that's because she bought Compaq. It was a terrible deal, and it really led to the destruction of the company."

"Honestly, Mr. Trump, I find it quite rich that you would talk about this," Fiorina shot back, with her own laundry list of Trump’s failings as as businessman. (We address one of her claims in a separate fact-check.)

Trump and Fiorina both talk up their private-sector experience as proof of presidential acumen, so we were curious about Trump’s claim that Fiorina’s business record is exaggerated. The Trump campaign didn’t get back to us.

The Compaq merger

Fiorina has repeatedly claimed that she doubled the size of HP, referring to the revenues created by the company. But, as Trump says and as we and other fact-checkers have noted, this growth largely stems from the company’s controversial merger with Compaq.

Under Fiorina’s direction and after an embittered proxy war, HP bought Compaq for $25 billion in 2002, "a bold move" to make the two struggling companies more competitive and in a position to take on then-industry giant IBM.

In 2001, HP reported a net revenue of $45.2 billion and Compaq $33.6 billion, according their Securities and Exchange Commission filings, for a combined revenue of $78.8 billion. This may look like growth but, according to experts, it’s inflated and inorganic.

"Revenues will obviously go up after a merger so the real question is whether revenues grew after accounting for the combined revenues of HP and Compaq. Here, this is little to support Carly's statement," said Kartik Hosanagar, a professor at the Wharton School of Finance at the University of Pennsylvania.

By 2004, Fiorina’s last full year as CEO, total revenues for the merged company were $80 billion. In other words, "revenues barely grew during that period," Hosanagar said.   

Fiorina is by no means the first executive to take credit for revenue increases spurred by a merger, pointed out Steve Morrissette, a professor at the Booth School of Business at the University of Chicago. Still, he said, claiming it as growth is "disingenuous."  

A ‘terrible deal’

We should note that HP has not been "destroyed" -- it’s alive and kicking, but the question of the merger’s long-term impact on the company remains somewhat unsettled, even more than a decade after the deal.

When the merger was published on Sept. 4 , 2001, HP stock prices plummeted, and fell again when the deal was completed on May 3, 2002. It resulted in 30,000 layoffs, Fiorina’s ousting, a low profit margin ($2.4 billion in 2004, less than 5 percent of the revenues), and lower stock prices. (Fiorina, for her part, has maintained that this is due to the dot-com bubble burst rather than her leadership or the merger.)

"This was a big bet that didn’t pay off, that didn’t even come close to attaining what Fiorina and HP’s board said was in store," veteran financial journalist Carol Loomis wrote in Fortune in 2005. Dell’s CEO famously called the merger "the dumbest deal of the decade."

In recent years, however, some industries watchers have come to view the merger in a better light. The Fiorina campaign forwarded PolitiFact several reports and columns hailing the deal as an ultimate boon.

"Hewlett-Packard Co.’s fiscal third quarter earnings showed a decline in nearly all of its businesses, with one exception: industry standard servers, a segment area that grew in part as a result of H-P’s much-maligned merger with Compaq Computer in 2002," according to a column published in August 2015 in the financial news site MarketWatch.

Among the "success" camp, however, is a substantial number of analysts who say much of the credit should go to the man who replaced Fiorina as CEO, Mark Hurd.

"Ultimately, it turned out to be a good move," said Robert Burgelman, a professor at the Stanford School of Business who has studied the merger at length. "But although the logic of the merger was correct, executing it was difficult. ...Hurd accomplished what Fiorina couldn't."

Still, many experts don’t buy the notion of Fiorina’s foresight or the brilliance of the merger. Morrissette of the Chicago Business School pointed out that HP is currently splitting into two companies.

"Time did not show the merger to be a success," he said. "Most analysts do not consider HP a success story. The company has continued to struggle."

Our ruling

Trump said, "When Carly says the revenues went up, that's because she bought Compaq. It was a terrible deal, and it really led to the destruction of the company."

Though the HP-Compaq merger was almost universally condemned at the time the deal took place, time has made the merger look better in the minds of some.

But there’s no question that the growth in HP’s revenue did indeed come from its 2002 merger with Compaq. That means it’s not organic growth, but rather merely due to increase in the volume of the combined company.

We rate this claim Mostly True.