Way back in January (CI 3,074), we published a story that got us some brickbats for suggesting that rumors had been circulating that Compaq Computer Corp had been pursuing a takeover of Digital Equipment Corp. Long after the event, yesterday the Wall St Journal finally placed its own kind of tombstone on the story with what seems to be a fairly complete round up of what we all thought was happening. It goes without saying that anyone who’s been around for even a couple of years in this business knows that companies mount talks like these all the time – and that many of them add up to no more than hot air in a Holiday Inn in a neutral city, with no harm done to either side.
By Gary Flood
But this one does seem to have been a deal that came within a whisker of happening. The first overture seems to have taken place sometime late in 1995, according to the Journal, when Robert Palmer, DEC’s chief executive officer, seems to have agreed to a purchase price of between $9bn and $10bn for his troubled careling, a good premium for Digital shareholders given that the company’s market capitalization was then around $6.5bn. But DEC managers seems to have skittered away the chance to tether their $14.1bn turnover leaking tanker with Compaq’s sleek and profitable $18bn battle cruiser for some pretty appalling ‘reasons.’ Apparently some of the old guard didn’t want to lose the oh-so historic DEC name (what did they expect the new hybrid to be dubbed – Compec? Decaq? DECompaq?), its roots in the East of the US (why did they sell the original Maynard Mill where it all began then?) or, shock, want to report to some of these upstart Texan PC boys, who, harrumph, probably never stripped a PDP-11 in all their born days! What did Eckhard Pfeiffer of Compaq expect he’d get from these lamebrains? While the Journal seems to think the Alpha chip business was just about taking off in late 1995 – hmm, where did it fly to then? – the real reason must have been that nice fat ($6bn then) services business, then employing 20,000 staffers. Plus, it would have helped Pfeiffer establish Compaq much quicker as a fully-leaded PC to mainframe class server provider with a true international face, vital to achieve his stated goal of making Compaq a $40bn company by century’s end. The second time on the dance floor, summer 1996, seems to have been much less serious, even though DEC was by then in a far weaker position to call the shots – its share price had collapsed from $76.50 in February 1996 to just over $64 to $30.50 in July (where it remains, though now at nearly $32, but still well down from its 52-week high of $58.50 – Compaq is in the $90 range at the moment). That still puts DEC’s purchase price at around where it was when we wrote our story, a fairly pitiful $5.65bn, pitiful for those of us who remember when DEC was the industry number two behind IBM Corp. It is less clear why the second set of negotiations failed, but they were history by early September 1996 and there have been no further approaches. As of early last month (CI 3,134), that services business was still seen as one of the very, very few things left about Bob Palmer’s DEC that outsiders still envied – we picked up gossip that put Electronic Data Systems Corp as interested in snapping it up – facilities management and perhaps systems integration parts thereof, ANYHOW, if not the full thing. So why should Palmer feel happy for letting this chance slip away? While he keeps finding more bits of family silver and things in the safety deposit box to sell to make the bottom line look more or less so-so – like his sale in March of the ObjectBroker, DECmessageQ, and ObjectBroker Desktop Connection product line, and an unrestricted worldwide source license for DEC’s SAP R/3 Wrapper, to newly public BEA Systems Inc in March. This strategy of cut and cut and flog off and flog off is kind of OK if the absolute aim of a public corporation is to remain independent. Indeed, Palmer remains buoyant about the future of a stand-alone DEC that is now pretty much a chip maker that has some services work, and acts as Microsoft Corp’s largest value added reseller for its Windows NT server operating system – that has such genetic similarities with DEC’s own faded glory, DEC VAX/VMS. He told Cable News Network in March that he thought 90% of the restructuring DEC needed is complete. Though bobbing up and under a red line quarter by quarter, with its third quarter figures last month showing the same old story of less revenue and less profit and less employees than the same time the year before, as in revenue down from $3.62bn to $3.31bn, net income over halved from $124m to $51m and headcount down 5,800 to 55,100. Still, at least one Wall St analyst, Steven Milunovich of Morgan Stanley & Co, responded to Palmer’s Panglossian optimism with a decision to slash his forecast of fiscal 1997 and fiscal 1998 earnings estimates. Should Palmer be happier that he runs a company that does $1bn in Internet related business (though that figure includes Alpha server sales and the work done by its well liked Alta Vista Web search engine arm), than that he could have put Digital into a sturdy new phase as part of a company that would have been fourth in the manufacturer terms after IBM, Hewlett-Packard Co and Fujitsu Ltd?