Rumors that have swirled for the last six months or so suggesting Compaq Computer Corp, on its mission to become an enterprise- class supplier by the end of the decade, was trying to buy the systems support business from DEC in the process, have risen to the surface again. Although last time we heard those purported talks had fallen through, thrashed by DEC’s board who wondered where the money would come from otherwise, word on the grapevine suggests the two have talked over the last three weeks about Compaq swallowing the Maynarder lock, stock and barrel. DEC would deliver to Compaq an enormous mid-range customer base with nowhere to go apart from Windows NT on Pentium Pro servers – and Compaq is already the market leader in servers; a large professional support organization, something that Compaq has to have if it is to achieve its ambition of being taken seriously as a full-line computer company; and a shrinking but still worthwhile addition to Compaq’s networking equipment business – plus plenty of integration skills in that area. The only minor fly in the ointment is the Alpha RISC business, and although there have been numerous suggestions Compaq might actually adopt Alpha, Compaq could afford to let that go in a management buyout, or even run it down over five years and still justify the price. DEC’s share price of $36.50 currently values the company at a derisory $5.65bn. Even if Compaq were to pay an 80% premium to the price in the market, it could still afford to close the Alpha business and come out ahead. Compaq’s aim is to become the world’s third biggest computer company by 2000, and buying DEC would be a giant leap in that direction – DEC’s annual revenue is currently running at around $14bn and Compaq should do something around $18.5bn for 1996 when it reports shortly, so a combination would have annual sales of around $32.32bn. Only IBM Corp, Hewlett-Packard Co and Fujitsu Ltd would be bigger than a merged Compaq-DEC.
