We thought Compaq Computer Corp was sniffing around at the end of last year to buy UB Networks Inc (CI No 3,065), but it looks like it was UB’s parent Tandem Computers Inc it was after all along. It seems only the two companies’ major partners, Microsoft Corp and Intel Corp knew in advance of yesterday’s announcement that Compaq is to buy Tandem for 29 million shares of Compaq stock on an exchange ratio of .21 Compaq shares for each Tandem share, valuing Tandem at around $3.09bn based on June 20 closing prices, a premium of some $1.35bn over its market capitalisation of $1.73bn. The deal makes sense in a lot of ways. Compaq, highly successful in the personal computer and low-end server market has been seeking a route into the high-end enterprise business for a long time. Tandem, with its NonStop, high availability Himalaya systems has made a major investment in NT over the past 18 months, and was looking to tap the nascent, volume market for commodity servers. The two companies are therefore talking up a storm about how they will now have an entire spectrum of NT offerings from notebooks to high-end clustered enterprise and mainframe substitutes – at half the price of Unix systems, claiming their business will be bigger than IBM, Hewlett-Packard, Sun and DEC. Tandem will become a wholly owned subsidiary of Compaq, and will remain as a separate company. Tandem chairman Tom Perkins joins the Compaq board, where he will be re-united with Compaq’s Ben Rosen, with whom he was involved in the original investment in Compaq.
Pfeiffer and Pieper
Roel Pieper, Tandem chief executive remains in his position and also joins the Compaq board as a senior vice president reporting directly to Compaq chief executive Eckhart Pfeiffer. Compaq will recognize an immediate a doubling of its sales and support team, to more than 8,000 from 4,000, which considering the company turns over around $18,000m to Tandem’s $2,000m, shows it did not have the infrastructure to support enterprise customers before. Compaq says Tandem’s direct sales force will now sell the complete range of both companies’ products, and the existing Compaq channel will get the fulfillment of all orders. It looks like there will be some rationalization of products where the two meet, that is to say the low end Tandem servers and the high-end of Compaq’s product line, but the companies insist there will be no job losses at all. Compaq will further invest in the Tandem brand. The one big question in everyone’s mind is the future of Tandem’s Himalaya systems, which currently account for a whopping 70% of its revenue, which was $467m last quarter. At the moment, both companies insist they will continue to support these fault tolerant systems, which form the backbone of many of the world’s large financial institutions. Tandem has recently migrated the Himalaya NonStop software and ServerNet clustering technology to NT (CI No 3,162), and Pieper says customers will ‘extend and surround’ existing Himalaya systems with NonStop NT. Nevertheless, he expects the balance of Tandem’s business, currently 70% Himalaya, 15% Unix – exclusively in telco’s – and the remainder ancillary and NT, to shift to equal shares for Himalaya and NT. The other issue is whether Compaq will insist that Tandem drop the MIPS RISC it currently uses in its Himalaya and Unix servers in favour of Intel parts that Compaq uses, including the next-generation 64-bit Merced processor. Tandem says it already has plans to use two further iterations of the R10000 part it has recently introduced into its lines, but the suggestion is that those could be its last use of Mips technology. Tandem says it also expects the two companies to investigate other rationalization and consolidation around their Unix activities: Compaq sells Santa Cruz Operation Inc Unix on its servers while Tandem maintains its own SVR4-based NonStop UX but has created an OEM version of ServerNet which clusters Compaq servers running SCO UnixWare. Tandem says the combination has been developed for use as next-generation telco Unix systems. Comp
aq says the tax-free merger will be immediately accrecative and will show in its third quarter figures. The deal should close in 90 days. Compaq share dipped $2.87 on the day to $103.87; Tandem shares jumped for joy and closed up $5.75 at $20.75.