HP To Merge With Compaq For US$25 Billion

Hewlett-Packard Tuesday says it will merge with Compaq Computer in a stock swap deal worth about $25 billion. The boards of both companies approved the union Monday night.

The combined company will have the top worldwide revenue positions in servers, access devices (PCs & hand-helds), and imaging and printing, as well as huge revenue positions in IT services, storage, and management software. Only IBM is reported to have a slightly larger share of the market.

The merged company will be headquartered in Palo Alto but retain a significant presence in Houston.

Carly Fiorina, chairman and CEO of HP, will be Chairman and CEO of the new HP. Michael Capellas, chairman and CEO of Compaq, will be President. Capellas and four other members of Compaq’s current Board of Directors will join HP’s Board as soon as stockholders and the SEC approve the deal.

“At a particularly challenging time for the IT industry, this combination vaults us into a leadership role with customers and partners – together we will shape the industry for years to come,” says Fiorina.

The new HP will be structured around four operating units that build on the companies’ similar market and product development structures.

– A $20 billion Imaging & Printing franchise to be led by Vyomesh Joshi, currently President, Imaging and Printing Systems, of HP.

– A $29 billion Access Devices business to be led by Duane Zitzner, currently President, Computing Systems, of HP.

– A $23 billion IT Infrastructure business, encompassing servers, storage and software, to be led by Peter Blackmore, currently Executive Vice President, Sales and Services, of Compaq.

– A $15 billion Services business with approximately 65,000 employees in consulting, support and outsourcing to be led by Ann Livermore, currently President, HP Services

The deal is expected to heat up the competition in the sagging computer hardware sector especially for the likes Dell and Sun Microsystems , which have also suffered from recent sluggish sales.

According to the terms of the deal, one Compaq share will be substituted for about 0.63 Hewlett-Packard shares, providing a premium of around 18 percent.

HP says the merger is expected to generate cost synergies reaching approximately $2.5 billion annually. Based on both companies’ last four reported fiscal quarters, the new HP would have approximate pro forma assets of $56.4 billion, annual revenues of $87.4 billion and annual operating earnings of $3.9 billion. It would also have operations in more than 160 countries and more than 145,000 employees.

At the close of trading on Friday, shares of Palo Alto, Calif.-based HP were lower by 19 cents, to $23.21 per share. Houston-based Compaq’s stock closed on the downside as well at $12.35, 34 cents less than on Thursday.

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