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H-P, Compaq agree to $25 billion merger

Hewlett-Packard boss Carly Fiorina is to head a merged entity  

NEW YORK (CNN) -- The world's second biggest computer maker, Hewlett-Packard and third-ranked Compaq Computer will merge in a $25 billion stock deal, the companies announced Monday.

HP and Compaq confirmed a "definitive merger agreement" which they said would create a new Hewlett-Packard with total revenue of $87.4 billion, and save $2.5 billion in costs a year.

The agreement comes at a time of depressed sales and earnings in the information technology industry, with many high-tech companies forced to slash their workforces as demand shrivels.

The new HP will have earnings of about $3.9 billion and would rank second only to IBM, which has annual sales of about $90 billion.

CNNfn's Bruce Francis has more on the first woman ever to run a Dow 30 company, Hewlett-Packard CEO Carly Fiorina (September 4)

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Under the terms of the agreement, unanimously approved by both boards, Compaq shareowners will receive 0.6325 of a newly issued HP share for each share of Compaq. That gives the merger a current value of about $25 billion.

HP, Compaq to split company 64-36

The companies said HP shareowners will own approximately 64 percent and Compaq shareowners 36 percent of the merged entity.

HP, based in Palo Alto, California, reported sales of $47 billion in its most recent 12-month period, while Compaq, based in Houston, Texas, had sales of $40 billion.

However the companies have seen their sales fall by 5 percent and 13 percent respectively in recent periods, and both have announced profit and job cuts.

Dell, now the fourth ranked computer company with revenues of $33 billion, will move to third once the merger is completed.

Fiorina to head new entity

Hewlett-Packard chairman and chief executive Carly Fiorina will become the new company's chairman and CEO. Compaq chairman and chief executive Michael Capellas will be president.

The merged company, as well as Fiorina, will be based out of Palo Alto.

"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.

She said the merger would create "substantial shareowner value through significant cost structure improvements and access to new growth opportunities".

She said the IT industry faced a challenging time, but the HP-Compaq combination "vaults us into a leadership role with customers and partners."

"Together we will shape the industry for years to come."

Between them the two companies have operations in 160 countries and 145,000 employees.

The companies did not say if the merger would lead to job losses. But they expect to save around $2.0 billion worldwide the first full year they combine, fiscal 2003.

Those savings should hit $2.5 billion the middle of fiscal 2004, the companies said.

HP and Compaq have extensive operations in Asia. HP employs about 14,000 people in Asia, operating out of 10 offices in Singapore, Japan, Korea, China, India and Australia.

Singapore is its Asia headquarters and main manufacturing base, with 6,000 workers at several plants.

Compaq also runs its Asia-Pacific operations out of Singapore. But it has production centers in Taiwan and elsewhere, and has separate divisions for Japan and greater China.

U.S. market closed for holiday

The downturn in the technology sector has taken a toll on the companies' share price, with Compaq down 76 percent from its 1999 peak and Hewlett-Packard down 66 percent from its peak.

The U.S. stock market was closed Monday for the Labor Day holiday. On Friday, Compaq's shares closed at $12.35, down 34 cents from the previous day's close, while Hewlett-Packard shares ended at $23.21, down 19 cents.

Compaq acquired Digital Equipment in 1998 and last year Hewlett-Packard made an unsuccessful bid for the consulting operations of PricewaterhouseCoopers.

• Hewlett-Packard
• Compaq Computer

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