As expected, shareholders of the outstanding common stock of Digital Equipment Corp voted to approve the company’s acquisition by Compaq Computer Corp at a special meeting on Thursday. The vote was closer than many would have anticipated, as 72% of shareholders voted in favor of the deal – just edging out the 66.7% majority necessary. Emotions at the meeting apparently ran high, as soon-to-be-retired chief executive Robert Palmer had to fend off some hostile queries. The approval vote makes the acquisition, which was first announced in January (CI No 3,334), effective immediately. As a result of the acquisition, Compaq will issue roughly $4.5bn in cash and about 141 million shares of Compaq stock, based on an exchange rate of $30.00 in cash and .945 shares of Compaq stock for each common share of Digital – making the deal worth a total of about $8.46bn, well below January’s original $9.6bn figure. Compaq shares closed at $28.0625 on Thursday, down $0.625. As of the close of the stock market on Thursday, DEC common stock will have ceased trading on the New York Stock Exchange. After the shareholders meeting, Compaq revealed it would cut 2,000 jobs from its own workforce, about 6% of its 31,500 staff, aside from the job cuts expected at Digital. Compaq will hold a press conference in New York Friday morning, where chief executive Eckhard Pfeiffer will comment on the goals and direction of the merged entity. Key issues are what will become of DEC’s PC unit and its plans for its Alpha microprocessor. Wall Street thinks it will take at least a year for Compaq to dismember and swallow DEC, and it is expected to record two big charges for the acquisition during the June quarter. They’re expected to be in the region of $2bn and $3.5bn. BancAmerica Robertson Stephens expects Compaq to keep DEC’s 22,000 service staff – some 43% of its 51,700 employees – but as many as half the remaining 30,000 could be looking at pink slips. The brokerage notes DEC’s operating expenses are 32% of sales versus IBM’s 27.5% and more than twice Compaq’s 15.2% operating expense ratio. DEC’s $2.2bn PC business will be jettisoned, it thinks.
