Compaq buys Digital for $9.6 billion Deal turns PC manufacturer into an IT giant

January  1998

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Boston (January 26, 1998) -- Compaq Computer announced today that it will acquire Digital Equipment for $9.6 billion, creating an IT giant capable of delivering everything from sub-$1,000 home PCs to high-end, enterprise systems based on the 64-bit Alpha architecture.

Under the terms of the agreement, Digital shareholders will receive $30 in cash and approximately 0.945 shares of Compaq common stock in exchange for each share of Digital stock, the company said. 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, the company said.

Upon completion of the merger, Digital will become a wholly-owned subsidiary of Compaq, the company said. Subject to the approval of Digital's shareholders, as well as government regulators, the transaction is expected to be completed in the second quarter of 1998.

Compaq president and CEO Eckhard Pfeiffer in a statement singled out a number of Digital's 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 "demonstrable improvements" in Digital's performance to explain why Compaq is making its move right now.

On January 15, Digital reported net income of $74.8 million, or $0.44 per common share, for the second quarter, compared with net income of $31.9 million, or $0.15 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 "turnaround" status.

Digital's 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.

--Rebecca Sykes and Kristi Essick, IDG News Service (a SunWorld affiliate)

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