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The acquisition for $25-billion in stock will make Hewlett-Packard the second-largest computer company.
©New York Times
© St. Petersburg Times, published September 4, 2001
Hewlett-Packard 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, the New York Times and Wall Street Journal reported late Monday.
The merger, if completed, would produce a company with total revenue only slightly less than that of IBM, the largest computer company. But both Hewlett-Packard and Compaq have recently seen revenues slide and profits plunge because of a computer industry slowdown, and both have announced job cuts.
For Carleton S. Fiorina, who became chief executive of Hewlett-Packard in 1999 when she was hired away from Lucent Technologies, the acquisition amounts to a renewed bet on the computer business and particularly a new operating system for computer servers that was developed by Intel and Hewlett-Packard. Compaq is the other large company that has announced it plans to use that technology, which will compete with technologies developed by Sun Microsystems and IBM.
Late last year, Hewlett-Packard had tried to move in a different direction that emphasized services by acquiring the consulting operations of PricewaterhouseCoopers, the large accounting firm. But that plan fell apart as Hewlett's stock price declined.
Compaq, which is based in Houston, began in 1982 as a maker of personal computers. It became a phenomenal success in its first 15 years but has stumbled more recently amid severe price wars in personal computers. Its 1998 acquisition of Digital Equipment, itself once the second-largest computermaker, has not been viewed as a great success.
Investors in both Compaq and Hewlett-Packard have suffered in the current decline in technology stocks, although Compaq's woes have taken a greater toll. That stock is down 76 percent from its peak, reached in early 1999, while Hewlett-Packard is off 66 percent from its peak, reached last summer.
While the executives involved in the talks said that an agreement had been reached that provided for Hewlett-Packard to acquire Compaq, exact terms of the offer were not disclosed, the New York Times reported. The report said, however, that a premium is being offered for Compaq's stock, which closed Friday at $12.35, down 34 cents, while Hewlett-Packard shares fell 19 cents to $23.21.
Spokesmen for both companies declined to comment Monday night.