HWP) will announce today that it is acquiring Compaq Computer
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."
"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
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
"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."