Compaq Buys Tandem For $3 Billion
Louise Kehoe in San Francisco
Compaq Computer, the worlds leading supplier of personal computers, on Monday agreed to acquire Tandem Computers, a Silicon Valley maker of high performance mainframe computers, in a stock swap valued at about $3 billion (1.8 billion). The deal could catapult the growing US company into the worlds leading computer manufacturer by the turn of the century, surpassing International Business Machines, which has led the industry for more than three decades.
Even before Mondays announcement, Compaq, which had sales last year of $18.1 billion, had set a goal of more than doubling its revenues to $40 billion by 2000.
IBM had total sales last year of $75.9 billion, but a growing proportion of its revenues is derived from software and services.
Eckhard Pfeiffer, Compaq chief executive, said on Monday the acquisition of Tandem could make the group grow even faster. The combined companies would be the worlds largest supplier of computers based on Intel chips and Microsofts software.
Tandem, with 1996 revenues of $1.9 billion, is best known for its fault-tolerant computer systems which are guaranteed not to fail. It has begun a strong rebound over the past nine months after falling behind in the trend toward open systems based on industry-standard chips and software.
Tandem customers include many top banks, retailers and telecommunications companies.
Acquisition talks grew out of a technology partnership between the companies, Pfeiffer said. For the past year, Tandem and Compaq have been collaborating in the development of clustering technology which harnesses several high-capacity computers, known as servers, to increase the reliability of a corporate network system.
As we discussed industry and product directions we realised we had a tremendous joint opportunity, said Pfeiffer.
Compaq will swap 29 million newly issued shares at an exchange ratio of 0.21 Compaq shares for each share of Tandem stock. Based on Fridays closing prices this values the deal at just over $3 billion, a 42 per cent premium over Tandems market value.
To complete the acquisition, Compaq rescinded a previously announced share buyback programme.
Following news of the deal yesterday, Compaqs shares opened at $105 1 /2, down $1 1 /4. Tandems share price soared to $21 3 /4, a $6 3 /4 gain.
The deal follows reports of aborted acquisition talks between Compaq and Digital Equipment, a larger computer manufacturer, as well as Gateway 2000, another PC company. Tandem, however, appears to be a better fit with the Texas PC manufacturer, industry analysts said.
The acquisition will quickly boost Compaqs ability to address a much broader market for enterprise class computers, said Pfeiffer.
As well as giving Compaq an entry into the market for powerful computer systems, the deal will put it in the forefront of electronic commerce technology, where Tandem has been a pioneer.
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