$3.1bn Tandem buy puts Compaq on top

PC manufacturer becomes largest company in enterprise computing by gaining access to mid-range and high-end markets

Compaq is looking to dominate all areas of the hardware market after revealing plans to purchase Tandem in a deal worth $3.1 billion.

The deal, announced on 23 June, is a share swap which will see Compaq issue 29 million shares, which works out at a ratio of 0.21 Compaq shares to every Tandem share. Tandem?s share price rose nearly 50 per cent over the closing figure at the end of the previous week.

Eckhard Pfeiffer, CEO of Compaq, said the acquisition made Compaq the largest company in enterprise computing.

?Our total addressable market has been doubled to about $650 billion. This offers opportunity for significant revenue growth,? he said.

Although Compaq will keep Tandem as a separate unit, in effect it doubles the manufacturer?s field salesforce.

Pfeiffer said: ?We will offer complete solutions from handhelds all the way to Windows NT servers and massively parallel commercial systems.? According to Pfeiffer, Compaq will pass the benefits of handling Tandem products on to its resellers.

Roel Pieper, CEO of Tandem, said the rate of change in the IT industry demanded a fresh business model. ?The merger will create a broader range of open customers solutions to the market. We had been in the process of extending our enterprise line-up to offer reliable and scalable Windows NT solutions to our customers. This merger will turbocharge this strategy.? Tandem made a profit of $100 million for the year ended September 1995, but a year later this had been eroded to a loss of $22 million.

The deal will give Compaq access to the mid-range and high-end market it has always craved, while allowing Tandem customers to embrace the world of high-end PCs. Rival Gateway 2000 acquired ALR for similar reasons.