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Compaq Buys Digital Equipment

Largest ever computer industry merger will bring Digital%squots Alpha chips, Windows NT enterprise systems, and OpenVMS under Compaq%squots sway.

By Rebecca Sykes and Kristi Essick, IDG News Service   

Under the terms of the agreement, Digital shareholders will receive $30 in cash and 0.945 shares of Compaq common stock in exchange for each share of Digital stock. Compaq will issue approximately 150 million shares of stock and $4.8 billion in cash, for a total price of $9.6 billion based on the January 23, 1998 closing price of Compaq stock.

Upon completion of the merger, Digital will become a wholly owned subsidiary of Compaq. The transaction is expected to be completed in the second quarter of 1998, subject to the approval of Digital%squots shareholders and government regulators. Compaq president and chief executive officer Eckhard Pfeiffer in a statement singled out a number of Digital%squots assets as particularly attractive to Compaq, including its worldwide services organization, Alpha microprocessors, OpenVMS, Digital Unix and Windows NT enterprise systems, open storage, and software.

In the statement Pfeiffer also cited %dquotdemonstrable improvements%dquot in Digital%squots performance to explain why Compaq is making its move right now.

On January 15 Digital reported net income of $74.8 million, or 44 cents per common share, for the second quarter, compared with net income of $31.9 million, or 15 cents per common share, for the same period last year.

After a number of tough years, Digital has been reporting improved financials for the past handful of quarters, but many analysts have been reluctant to grant the Maynard, Massachusetts-based company %dquotturnaround%dquot status. Digital%squots strategy to get back to profitability has included the October sell-off of its Alpha microprocessor manufacturing facility to Intel and the jettisoning of its networking division, which Digital sold to Cabletron Systems for approximately $430 million in November.

If the Compaq-Digital merger passes regulatory muster, it will be the largest acquisition ever in the computer industry and will create the second largest computing company in the world, according to the statement from Compaq.

Compaq%squots $9.6 billion offer handily tops the $3.52 billion IBM paid to acquire Lotus Development in 1995, at that time the largest software deal in history.