HP acquires Compaq in $25 billion stock swap deal

The deal, which is one of the largest in ‘technology history’ will create an organisation only slightly smaller than IBM.

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By  Greg Wilson Published  September 4, 2001

Hewlett-Packard is redefining the whole hardware market, with the $25 billion ‘stock swap’ acquisition of Compaq.

The deal, which is one of the largest in ‘technology history’ will create an organisation only slightly smaller than IBM.

Carly Fiorina, chairman and CEO of HP will become the new entity’s chief executive and chairman. Michael Capellas will assume the role of president.

Capellas and another four Compaq board members will join HP’s board.

“This is a decisive move that accelerates our strategy and positions us to win by offering even greater value to our customers and partners,” Fiorina said in a statement.

“In addition to the clear strategic benefits of combining two highly complementary organisations and product families, we can create substantial shareowner value through significant cost-structure improvements and access to new growth opportunities.”

Capellas simply added, “with this move, we will change the basis of competition in the industry.”

The deal already has unanimous approval of both sets of board members. Compaq shareholders will receive 0.6325 of newly issued HP shares, for each Compaq share. The stock swap will result in HP shareholders owning 64% of the new entity, and Compaq shareholders will own 36%.

HP estimate the acquisition will generate ‘cost synergies’ totalling $2.5 billion annually. The combined entity will operate in 160 countries and employ more than 145,000 people.

However, market pundits are already pointing out the hazardous nature of the acquisition. According to Ashok Kumar, an analyst with US Bancorp, the two vendors are very much like.

“There are so many overlapping units there is no complementary benefit,” he said. “The problem with HP is that they have a lot to deal with and if they want to get Compaq, it is going to be really tough.”

Layoffs are thought to be inevitable as the combined entity realigns its product portfolio.

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