Posted on: Tuesday, September 4, 2001
Hewlett-Packard buying Compaq
Associated Press
SAN JOSE, Calif. — Hewlett-Packard Co. is buying fellow computer maker Compaq Computer Corp. for an estimated $25 billion, a deal meant to bolster two companies that have been saddled with sagging profits and massive job cuts, the companies announced last night.
The stock swap would create a computer behemoth that would rival technology leader IBM. In its most recent 12 months, Hewlett-Packard reported revenues of $47 billion, while Compaq had revenues of $40 billion. The new company's revenues would be only slightly less than IBM's $90 billion.
It would also link the PC industry's second- and fourth-largest manufacturers, with worldwide sales totals that would surpass No. 1 Dell Computer Corp., according to Gartner Dataquest. Compaq also ranks first in sales of computer servers, while HP is fourth, behind Dell and IBM.
Hewlett-Packard chief executive Carleton "Carly" Fiorina, 46, who would continue to be chief executive of the combined company, said the deal "vaults us into a leadership role with customers and partners — together we will shape the industry for years to come."
The new company would have annual earnings of $3.9 billion and operations in more than 160 countries and 145,000 employees.
The deal comes as the computer industry suffers through a downturn that has seen sales shrink considerably. Hewlett and Compaq's stocks suffered drastically in recent months.
The companies have blamed their woes on worsening economic conditions and intensifying price wars around the world.
The companies did not say whether they would be cutting any more jobs beyond what they separately have announced in the past several months. Compaq has said it is cutting 8,500 positions, leaving it with 62,800 jobs. Hewlett-Packard is slashing 6,000 jobs, giving it 87,000 positions.
In June, Compaq chairman and chief executive Michael Capellas outlined a broad reorganization plan brining the company's global services division into the forefront in the company's work. Hewlett-Packard has also moved in a similar direction.
A combination of the two would challenge IBM, which has successfully expanded beyond the PC business into computer services.
The companies said the deal calls for one Compaq share to be exchanged for about 0.63 Hewlett-Packard shares, providing shareholders a premium of around 18 percent. HP shareholders will own approximately 64 percent and Compaq holders 36 percent of the merged company.
The combined company would be based in Hewlett-Packard's hometown of Palo Alto, Calif. Capellas will be president.
Houston-based Compaq began in 1982 as a maker of personal computers, experiencing rapid growth in the following decade and a half before stumbling recently.
Hewlett-Packard was founded in a garage in 1938 by the late William Hewlett and David Packard. They saw the company grow from a start-up that Hewlett said made "anything to bring in a nickel" to a multibillion-dollar manufacturer of high-quality computers and scientific instruments.
