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Compaq acquires Tandem
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June 23, 1997: 1:25 p.m. ET
CEO tells CNNfn the deal will not undermine the company's resellers
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NEW YORK (CNNfn) - Compaq Computer Corp. said Monday it will acquire Tandem Computers Inc. in a stock swap deal worth about $3 billion.
Compaq will issue about 29 million shares for Tandem, using an exchange ratio of 0.21 Compaq shares for each Tandem share. Tandem will become a wholly-owned subsidiary of Compaq.
In its statement Monday, Compaq said the tax-free combination will immediately add to earnings. The company also said it would discontinue its previously announced stock buyback program.
Houston-based Compaq is the fifth-largest computer company worldwide with sales of $18.1 billion last year. The company distributes its computers largely through a channel of resellers.
However, Compaq's sales growth has not been as fast as that of competitors such as Dell Computer and Gateway 2000, which sell directly to the public. Indeed, Compaq made an attempt to buy Gateway earlier this year, but negotiations failed to yield a deal.
Compaq has since sought to increase its own direct relationship to consumers, through steps such as a recently-announced plan to add 2,000 sales people. Such moves have concerned their resellers who stand to lose sales.
Eckhard Pfeiffer, CEO of Compaq, said that those resellers needn't worry about a shift in direction.
"We are and will continue to compete effectively and very aggressively with the direct channel," Pfeiffer said Monday on CNNfn's "Digital Jam."
"Let's not forget that the so-called direct companies have really not much more than a total of 10 percent combined. The rest of the industry [is selling] through indirect channels."
The company said its acquisition of the Cupertino, Calif.-based Tandem will increase its network of contacts with business customers. Tandem offers server technologies as well as electronic commerce, messaging and security encryption technology.
The move is just the latest sign that Compaq is moving from being just a PC company to a broad-based computer systems company, said technology analyst Andrew Neff of Bear Stearns.
"There's a bigger agenda here. Tandem has been in the forefront in moving to clustering [combining smaller computers' processing power to act like a mainframe]. That's one area that Compaq, along with Microsoft and Intel, want to move into," said Neff.
The Tandem deal may not mean the end of Compaq's acquisition attempts. Compaq still has cash reserves of nearly $5 billion, and analysts say it may still have its eye on semiconductor firm Micron Technology. 
-- Randy Schultz
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Compaq
Tandem
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