graphic
News > Technology
Compaq to buy DEC
January 26, 1998: 8:06 p.m. ET

Compaq snags Digital in $9.6 billion deal, plans to expand AltaVista
graphic
graphic graphic
graphic
NEW YORK (CNNfn) - Compaq Computer Corp., seeking to expand into the lucrative enterprise computing business, agreed Monday to acquire Digital Equipment Corp. in a blockbuster deal worth $9.6 billion.
     The deal -- the largest merger in the history of the computer industry -- catapults Compaq into the upper echelons of computer makers, behind industry leader IBM (IBM) and Hewlett-Packard Co. (HWP).
     It also enables Compaq to take advantage of the coming boom in business computing as companies upgrade their equipment ahead of the new millennium.
     Under terms of the transaction -- -- Digital shareholders will get $30 in cash and 0.945 shares of Compaq stock for each of their Digital shares. Based on current prices, Digital shareholders would receive about $57.41 a share in cash and stock, well above Friday's closing price of $45.44.
     Compaq shares fell 2-3/4 to close at 29 while Digital shares soared 10 to 55-7/16.
     Compaq will issue approximately 150 million shares of Compaq common stock and pay $4.8 billion in cash to pay for the deal.
     The Maynard, Mass.-based Digital Equipment is a supplier of networked computer systems, software and services. It has an extensive server operations business, which offers an attractive high-profit margin. Compaq (CPQ) is the largest supplier of personal computers in the world and the fifth-largest computer company.
     Compaq Chief Executive Eckhard Pfeiffer said the acquisition of Digital makes Compaq a worldwide powerhouse with product offerings in virtually every segment of the computing market. (400K WAV) or (400K AIFF).
     Excluding HP's non-computer sales, which total about $7 billion a year, the combined Compaq-Digital would be the second-largest computer maker in the world behind IBM, which posted revenues of more than $78.5 billion in 1997.
    
No plans to sell AltaVista

     As part of a patent infringement suit settlement with Intel Corp. last fall, Digital sold some of its semiconductor manufacturing facilities to Intel for $1.5 billion, including operations which make its high-speed 64-bit Alpha line of processors.
     Among other applications, the Alpha processors are used in Digital Equipment's popular AltaVista Web search engine. The AltaVista Internet unit was scheduled for an initial public offering last year but Digital canceled the plan.
     Compaq's Pfeiffer would not divulge what specific plans they had for the AltaVista unit but said that no spin-off or sale was planned. He also said he would actively look at ways to capitalize on the Internet division.
     "One obvious attraction on our side was obviously the rich technologies Digital had, among them Internet technology," said Pfeiffer. "We're going to take a close look at putting it all together and hopefully we can leverage the new company's total capability."
    
Fitting together

     Compaq has been moving toward an enterprise computing business model in an attempt to diversify from being a straight personal computer company and the Digital Equipment acquisition should help in that respect, said Rick White, managing director of Salomon Brothers Asset Management.
     "DEC has a strong services organization and an installed base that Compaq can then lever up through its own products," said White.
     Last year, Compaq bought Tandem Computers for $3.1 billion. That merger doubled Compaq's sales and service forces. Compaq then turned its attention to Digital. The two held merger talks before but they never reached fruition.
     Digital (DEC) does more than half of its business overseas and analysts said that was part of Digital's attraction to Compaq.
     "It gives Compaq international service and support. It gives them a whole new product line. It can fill in the PC end and makes them a total world-size, world class computer company," said Robert Gutenstein, technology analyst with Kalb, Voorhis.
     Compaq is already number one in Europe with a 16 percent market share of PCs there. To that, Digital will add a large European base of customers for its workstation and large computer system business.
     Compaq would not specify, however, on any possible job cuts, saying only that it would have a clearer picture after the deal is completed sometime in the next three to four months.
     One of those jobs which could be affected might be Robert Palmer, Chief Executive of Digital.
     Palmer would not specify how long he would remain, only saying that "In the long term, my interest is seeing this integration working as smoothly as possible for everyone involved.
     "I'm excited about the opportunity to compete against IBM, Hewlett-Packard, Sun Microsystems and Dell Computer much more effectively when this deal is consummated."Back to top
-- by staff writer Randy Schultz

  RELATED STORIES

FTC drops Intel injunction - Jan. 13, 1998

Compaq execs depart - Jan. 12, 1998

Intel, Digital settle lawsuit - Oct. 27, 1997

PCs breaking price barrier - Nov. 21, 1997

  RELATED SITES

Compaq

Digital Equipment


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic