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New York Times, Others: Hewlett-Packard to Acquire Compaq in $25 Billion Deal

Sep 04, 2001, 05:30 (37 Talkback[s])

[ Thanks to James Derry for this link. ]

New York Times:

"Hewlett-Packard (NYSE: HWP) will announce today that it is acquiring Compaq Computer (NYSE:CPQ) for $25 billion in stock in a bold move to grow as the computer business struggles with shrinking sales, executives close to the negotiations said last night.

The merger, if completed, would produce a company with total revenue only slightly less than that of I.B.M. (NYSE:IBM) , the largest computer company. But both Hewlett-Packard and Compaq have recently seen revenue slide and profit plunge because of a computer industry slowdown, and both have announced job cuts.

The merger of the two computer giants could create a stronger competitor for Sun Microsystems (NASDAQ:SUNW) and I.B.M. in the server computer market while putting pressure on I.B.M., Dell and Gateway in the personal computer business. The executives said the merged company would be in a position to compete with I.B.M. across virtually its entire product line."

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"HP's buyout of Compaq will be fraught with difficulty, according to Ashok Kumar, an analyst at US Bancorp. The two companies are very much alike. Roughly one-third of HP's revenue comes from PCs, notebooks and servers. Roughly half of Compaq's earnings come from the same sources. Their Unix services businesses are similar.

Layoffs were expected, Kumar added. Both companies are being squeezed finanicially in nearly all of their markets.

"There are so many overlapping units there is no complementary benefit," he said. "The problem with HP is that they have a lot to deal with and if they want to get Compaq, it is going to be really tough."

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"Although the final terms have yet to be revealed, sources tell the Times and the WSJ that one Compaq share will be substituted for about 0.63 Hewlett-Packard share, providing a premium of around 18 percent.

At the close of trading on Friday, shares of Palo Alto, Calif.-based HP were lower by 19 cents, to $23.21 per share. Houston-based Compaq's stock closed on the downside as well at $12.35, 34 cents less than on Thursday."

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