Code Glitch Stalls Digital-Compaq Merger

Compaq Computer Corporation's `integration' of Digital Equipment Corporation's local subsidiary, Digital India, with itself is likely to be delayed.

This comes at a time when the Compaq is set to consolidate operations the worldover following its acquisition last April of Digital Equipment Corporation for $8.4 billion.

According to sources close to Digital and Compaq, Digital India is expected to remain in its current capacity, as an independent subsidiary, for some time to come. This follows the different takeover codes applicable in India with the Sebi (Securities and Exchange Board of India) governing such issues. While the Asia-Pacific remains a major site, which will be affected by the consolidation process, Compaq has as yet made no announcements on India.

Barring the country, Compaq has prepared the blueprint for the consolidation process starting with Singapore, China, Australia, Taiwan and Japan.

The main reason for the absence of any announcement is because Digital Equipment (India) remains the only Compaq subsidiary which is not yet `100 per cent' owned by it. Compaq, which owns only 51 per cent in Digital India, following its worldwide merger on June 11, is considering acquiring the remaining 49 per cent, sources added.

The remaining stake is held among others by Hinditron, financial institutions, foreign institutional investors (FIIs), banks, and the public.

Both Compaq and Digital maintained that no decision has been taken on the Indian entity.

"The process of `finalising the India organisational model' is on, and no comment can be made at this time as to when it is likely to be announced," a Compaq India spokesperson said. According to the spokesperson, the process is yet to `roll down' to India.

Sources said Compaq India was closely studying the applicability of Sebi codes on integrating Digital India into the parent firm. "This is because, while `takeover' codes are simple in the US, in India, it is not so."

On Monday, the process of integrating the worldwide manufacturing operations of Compaq, Digital and Tandem were set in motion, in a move to eliminate overlap and streamlining production. Site consolidation, manufacturing and restructuring have already been initiated.

Even as Compaq maintained that no decision has been made with regard to what will happen to the legal entities that comprise Compaq India, the market is ripe with speculation over the `consideration' price at which Compaq would offer to buy Digital's shares from public.

The share is currently quoting around Rs 127.

In Singapore, the Digital manufacturing facility will be consolidated at the existing Compaq manufacturing plant; in Shenzhen, China, the Compaq plant will cease operation with its primary products, enterprise power supplies to be manufactured by Compaq supplier partners in the same province; in Sydney, Australia, the Digital configuration centre will be consolidated into the Compaq Australasian technology center at Rydalmere; in Taiwan, operations at the Digital facility will be phased out through the end of the year; in Japan, operations will be consolidated at Digital's configuration centre in Akiruno city.

The worldwide consolidation of manufacturing operations of the three companies will result in a reduction of approximately 5000 regular employees.