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Investors Hammer HP-Compaq After Merger Announcement

Hewlett-Packard Co.'s stock value dropped more than 18 percent and Compaq Computer Corp.'s value dipped more than 10 percent Tuesday as investors reacted to the news that HP would buy Compaq for $25 billion.

HP and Compaq made the announcement on Monday night that turns the Big Four computermakers into the Big Three. The companies expect to close the deal in 2003.

If the merger passes antitrust hurdles, the combined company's $87 billion in annual revenues would be slightly smaller than IBM Corp.'s revenues but nearly three times as much as Dell Computer Corp. brings in each year. Dell's stock rose about 4 percent Tuesday.

Carly Fiorina would be chairman and chief executive officer of the merged company. Compaq chairman and CEO Michael Capellas would become president.

The deal would be handled as a stock-for-stock transaction with each Compaq share being exchanged for 0.6325 HP shares. HP shareholders would own 64 percent of the combined company, with Compaq shareowners holding 36 percent.

The $29 billion Access Devices business (PCs and handhelds) would be the single largest of the four proposed operating units. The IT infrastructure business, which includes servers and storage, would account for $23 billion in revenues. The imaging and printing business is worth $20 billion and the services operating unit accounts for $15 billion in revenues over the past 12 months between the two companies.

HP would become the top provider of servers, imaging and printing and access devices under the merger. It would become a top three player in IT services, storage and management software.

The merger would create a combined behemoth of 145,000 employees in 160 countries. However, the companies say they plan to eliminate 15,000 jobs in the 24 months after the deal closes.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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