HP, Compaq agree to merge in $25-billion deal

Hewlett-Packard Co. and Compaq Computer Corp. have signed a definitive merger agreement, creating a computer and services company with estimated annual revenues of $87.4 billion. The cost of the stock deal was set at about $25 billion.

The new company's anticipated revenues would come very close to those of long-time industry leader IBM, which reported revenues of $88.4 billion for 2000.

The combined HP–Compaq company will have the leading worldwide revenue positions in servers, PCs and handhelds, as well as in imaging and printing. The deal was approved by both companies' boards of directors. It may face some antitrust hurdles.

Carly Fiorina, chairman and chief executive officer of HP, will be chairman and CEO of the new HP. Michael Capellas, chairman and chief executive officer of Compaq, will join the combined companies' board and become president of the new firm.

Capellas said that some preliminary discussions on the topic of licensing intellectual property led the companies to decide that a formal merger "made logical sense." Both Compaq and HP have announced significant layoffs this year.

"HP will be the surviving brand," said Fiorina, while noting that Compaq will be used as a sub-brand. She noted that HP, which she admitted had examined the alternative of getting out of the PC business, decided that getting out of the PC business "doesn't make sense."

The PC business, said Fiorina, is an "important part of the solution bundle, and it is an entree into the rest of the enterprise."

Fiorina said company leadership anticipated significantly improved cost structure as a result of the combination.

Both HP and Compaq have attempted to build their services arms in recent years. But they come to this marriage primarily as hardware houses. Hewlett-Packard reduced its commercial software portfolio in recent years, although the company took a different tack earlier this year when it purchased application server provider Bluestone Software. Compaq, which became a major systems house with its purchase of Digital Equipment Corp. in 1998, inherited a software line that had been seriously slashed over a decade.

—Jack Vaughan

About the Author

Jack Vaughan is former Editor-at-Large at Application Development Trends magazine.