Compaq makes history with Digital acquisition
Compaq has acquired struggling Digital Equipment for a record $9.6 billion in a move designed to reposition the world's largest PC vendor as a true enterprise supplier, covering Unix as well.
Under the terms of the deal, Digital shareholders will receive $30 in cash per share and about 0.945 shares of Compaq stock for each share of Digital stock. Compaq will pay $4.8 billion cash for Digital and issue about 150 million shares of its stock. Digital will become a wholly owned subsidiary of Compaq and retain its name.
Digital shares jumped about $8.50 to trade at $54 in London after the acquisition was announced, although Compaq's fell slightly.
The deal, the biggest in the history of the computing industry, brings Compaq the much needed Unix capability - in the form of Digital's Alpha servers - which it would require to be considered a serious player right across the IT industry.
The PC manufacturer admitted that until now it had not been able to compete against Hewlett Packard, Sun and others when customers insisted on Unix systems.
Digital also has Windows NT-based servers, which Compaq will have to consolidate with its own range as well as those inherited from its acquisition of Tandem last year (PC Dealer, 25 June 1997).
According to Compaq chief executive Eckhard Pfeiffer, the acquisition of Digital will bring in a combined revenue of up to $37 billion. 'We gain a huge customer base and global support, taking us a step closer to our stated goal to be global leader by 2000.'
Also included in the price are Digital's extensive, global services business as well as its customer base and channel. 'Now we have the largest sales channel in the world - over 40,000 partners around the globe,' he added.
Bob Palmer, Digital CEO, said: 'For Digital, viability questions will no longer be an obstacle to our success. We are now in a much better position to go up against IBM, Hewlett Packard and Sun.'
FOCUS ON THE IT INDUSTRY'S BIGGEST TAKEOVER
Compaq's acquisition of Digital has raised the threat of channel conflict as the PC manufacturer struggles to absorb the size of the purchase as well as manage the services side of the business.
One channel observer said: 'Although many channel partners won't admit it, there is going to be channel conflict. How on earth is Compaq going to manage a channel of 40,000 members without any conflict?' He added that there must also be some overlap with Compaq's acquisition of high-end enterprise server supplier Tandem.
The most prominent of Digital's recent deals was with Intel in a bid to end their legal dispute last year (PC Dealer, 8 October 1997). Industry observers are speculating over whether the agreement will remain in place now that Digital's ownership has changed hands.
PC Dealer quizzed an Intel UK representative on the the question of any repercussions on the agreement, and the possibility of the chip vendor having to accept a pay-off from Compaq after any annulment of the agreement with Digital. The representative declined to comment, but said US lawyers were 'examining the situation'.
Rival Hewlett Packard was bold in its assessment of the acquisition. John Saw, UK technical manager at HP, said the buy marked the death knell for the Alpha project. 'These are uncertain times for Digital and its Alpha customers and there is bound to be a loss of momentum from both sides as they try to agree on a vision.'
He added that Compaq was seen as high volume, low value add, while Digital was low volume, high value add and that there was bound to be a clash at some point.
'Compaq is non-existent in Unix and Digital has at best five to six per cent, so it won't make a ripple on the status quo,' he continued.
Additional reporting by the PC Dealer news team.