Compaq snaps up Digital

Compaq Computer Corp. today announced it will buy Digital Equipment Corp. for $9.6 billion, creating the second largest computer company in the world.

The acquisition, expected to be completed in the second quarter, will be the largest ever in the computer industry. Shareholders will receive $30 in cash and approximately 0.945 shares of Compaq common stock for each share of Digital stock. Compaq will issue approximately 150 million shares of Compaq common stock and $4.8 billion of cash. Under the terms of the agreement, Digital will become a wholly owned subsidiary of Compaq.

"We put tremendous value on the customer relationships Digital has cultivated over the past 40 years," said Eckhard Pfeiffer, president and CEO of Compaq. "We are committed to supporting those relationships by investing in Digital's strategic assets, particularly its worldwide service organization as well as its 64-bit leadership with Alpha microprocessors, OpenVMS, Digital Unix and Windows NT enterprise systems, open storage and software systems."

"This merger gives Digital tremendous reach and credibility in the marketplace," said Digital Chairman Robert Palmer. "It gives us the scale and resources to make continued investments in our key technologies and services. Together, we will offer customers the greatest concentration of enterprise Windows NT products and services available in the market today."

The acquisition fulfill's Compaq's promise to become one of the big three global IT companies, the company said.

The buyout follows on the heels of Compaq's purchase of Tandem Computers, Inc. last year and Digital's sale of its networking hardware division to Cabletron Systems, Inc.

"What Digital customers get is a sigh of relief," said Kevin Tolly, president of The Tolly Group consultancy in Manasquan, N.J. "They have a company with deep pockets and its finances under control to take over."

What Compaq customers get is "a line that will be fortified by high-end and middle gear," Tolly said.

This also will help Compaq's NT story, Tolly said. "It's one thing to call NT a true enterprise system, it's another thing to have the hardware that will scale as well," he said.

Tolly's group has been testing Gigabit Ethernet with NT, and he said that Gigabit Ethernet performs better with NT on Alpha instead of Intel Corp.'s Pentium.

Terry Shannon, analyst and publisher of the "Shannon Knows DEC" newsletter said, "Compaq has a wealth of opportunity now that it didn't have before. If I were HP, I'd be a little worried. Digital is running with the big dogs again."