View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Technology
January 26, 1998

SO FAREWELL THEN: COMPAQ ACQUIRES DEC

By CBR Staff Writer

After years of rumor, Digital Equipment Corp has given up on the unequal struggle to survive in the postmodern computer age and has been swallowed lock, stock and barrel by Compaq Computer Corp for $9.6bn in cash and shares, a premium of 43% over DEC’s book price. The deal turns Houston, Texas-based Compaq into the world’s second biggest computer maker, with combined revenues of nearly $38bn, behind IBM Corp on $78.5bn, but ahead of Fujitsu Ltd on $36.3bn and Hewlett-Packard Co on $42.9bn, only $35bn of which is from computers. DEC shareholders get $30 in cash and approximately 0.945 shares of Compaq common stock worth another $30 for each share of DEC stock, or $14.57 on top of Friday’s closing price of $45.43. Compaq is to issue around 150 million shares of Compaq common stock and will spend $4.8bn of its $6.8bn cash pile to finance the deal, expected to close in May. DEC, of course, brings its own dowry of $3.2bn in cash to Compaq once last year’s Intel and Cabletron deals close; the deal will be accretive within the year, Compaq said. Compaq has flirted with a proposed acquisition of the 40-year-old DEC several times over the last couple of years as part of its oft-stated plan to become one of the top three computer suppliers by the year 2000. The rumors resurfaced at the end of last year (CI No 3,312), and were fueled further by DEC chief executive Bob Palmer’s comment following the sale of its networking business to Cabletron. No more divestitures are planned, he said. Only the big one, of course. Last September, Compaq was claiming the strongest balance sheet in the industry following its securing of a massive $4bn credit facility (CI No 3,253). Compaq CEO Eckhard Pfeiffer has clearly been waiting for DEC to get its business back into the black before putting such a perilous acquisition before his shareholders and DEC duly obliged by off-loading a raft of its interests including chip, software and networking businesses. The companies, which said they’d thought for a long time such a deal would make sense, began talks again a couple of weeks ago.

Mid-range base

Compaq, which says its next goal is to become the leader in enterprise computing – but declined to put a time frame on this plan – has bought DEC primarily for its high-end Windows NT expertise, especially its 64-bit work, and services organization. DEC delivers to Compaq an enormous mid-range customer base with nowhere to go apart from NT on Pentium Pro servers – and Compaq is already the market leader in servers. Compaq is betting the future of the enterprise lies with NT with Unix on the side; and to be taken seriously as a full-line computer company, it needs an effective services organization plus plenty of integration skills in that area. DEC brings both, including 1,600 Microsoft and 3,000 Unix professionals in its 23,000 services staff, plus its well-developed NT, Unix and OpenVMS integration services. DEC’s expertise in making NT more suitable for large system set- ups Compaq will add to the resources it already has on board from the $3bn Tandem Computers Inc acquisition it made last June (CI No 3,188). It doubles the size of Compaq’s existing $1.6bn storage business with DEC’s highly thought-of Storageworks unit. Compaq’s future is clearly Intel and NT and while there were some words to reassure DEC’s Alpha RISC, OpenVMS and Digital Unix customers, these are clearly of secondary concern. Although no organizational details will be announced before the deal closes it seems unlikely that Compaq will want to keep DEC’s still- proprietary OpenVMS operating system alive any longer than it is obliged to. The companies say OpenVMS users will be encouraged to migrate to NT – DEC has already tested Microsoft’s COM component object model technology on OpenVMS – and there will be no port to Intel. The Unix question is more interesting given that Compaq uses SCO UnixWare on its low-end, but high-volume server business. DEC offers a 64-bit Digital Unix on its high-power Alpha servers and is creating an Intel version of the operating system

version which Sequent Computer Systems Inc is to OEM. Tandem, meantime, has effectively put its fault-tolerant Unix into a holding pattern. All three parties say they expect to try and leverage the opportunity to talk to SCO about converging UnixWare with Digital Unix, but the Unix business being what it is it’s probably unwise read too much into this at the moment. The deal clearly puts the pressure on HP, which also has designs on enterprise NT, keeping in mind DEC and Microsoft will soon re- affirm their long-standing relationship on NT. Compaq shares closed down $2.75 at $29.00. DEC shares rose $10 to close at $55.81.

Content from our partners
DTX Manchester welcomes leading tech talent from across the region and beyond
The hidden complexities of deploying AI in your business
When it comes to AI, remember not every problem is a nail

Websites in our network
Select and enter your corporate email address Tech Monitor's research, insight and analysis examines the frontiers of digital transformation to help tech leaders navigate the future. Our Changelog newsletter delivers our best work to your inbox every week.
  • CIO
  • CTO
  • CISO
  • CSO
  • CFO
  • CDO
  • CEO
  • Architect Founder
  • MD
  • Director
  • Manager
  • Other
Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.
THANK YOU