Hewlett-Packard Co. will announce today that it is acquiring Compaq Computer Corp. for $25 billion in stock in a bold move to grow as the computer business struggles with shrinking sales, executives close to the negotiations said last night.
The merger, if completed, would produce a company with total revenue only slightly less than that of IBM Corp., the largest computer company. But both Hewlett-Packard and Compaq have recently seen revenues slide and profits plunge because of a computer industry slowdown, and both have announced job cuts.
For Carleton S. Fiorina, who became chief executive of Hewlett-Packard in 1999 when she was hired away from Lucent Technologies, the acquisition amounts to a renewed bet on the computer business and particularly a new operating system for computer servers that was developed by Intel Corp. and Hewlett-Packard. Compaq is the other large company that has announced it plans to use that technology, which will compete with technologies developed by Sun Microsys- tems Inc. and IBM.
Last year, Hewlett-Packard had tried to move in a different direction that emphasized services by acquiring the consulting operations of PricewaterhouseCoopers, the large accounting firm. But that plan fell apart as Hewlett's stock price declined.
Compaq, which is based in Houston, began in 1982 as a maker of personal computers. It became a phenomenal success in its first 15 years but has stumbled more recently amid severe price wars in personal computers. Its 1998 acquisition of Digital Equipment has not been viewed as a great success.
Investors in both Compaq and Hewlett-Packard have suffered in the current decline in technology stocks, although Compaq's woes have taken a greater toll. That stock is down 76 percent from its peak, reached in early 1999, while Hewlett-Packard is off 66 percent from its peak, reached last summer.
While the executives involved in the talks said that an agreement had been reached that provided for Hewlett-Packard to acquire Compaq, exact terms of the offer were not disclosed. They said, however, that a premium is being offered for Compaq's stock, which closed Friday at $12.35, down 34 cents, while Hewlett-Packard shares fell 19 cents to $23.21.
The executives said Fiorina would be chairman and chief executive of the combined company, which will be based in Hewlett-Packard's hometown of Palo Alto, Calif., while Michael D. Capellas, Compaq's chairman and chief executive, would be president.
