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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: otter who wrote (15049)	1/26/1998 9:13:00 PM
From: Carl Wysocki	Read Replies (4) \| Respond to of 97611

Ray, here's my thoughts on how the 1+1=3 works. Note that I'm a numbers guy, not a technologist (probably won't help for this combo anyway), and I'm allowing my imagination to remain unconstained until I get further details. I have always considered Compaq to be a "clone" maker, but a damned fine one at that--that's why I bought. And, I have always thought of DEC as having bad management, and wanting to take a short postition, but being afraid of a takeover. Tandem provided an entry into the enterprise market, but just a toehold, so DEC's service and sales cabability can prvode more presence and credibility in this market. If I'm not mistaken, CPQ is now claiming the #1 position in the server market (pro-forma), but this is based on units, not revenue. They are pretty low on the revenue share. They really want to move upsteam and Dec MAY provide that vehicle. So, I'm sitting here with my Value Line in hand, trying to figure out what a decent return from DEC would contribute. I'll figure that CPQ wants at least a 15% post tax ROI, which translates into $1.35 billion at some undetermined future point, based on a $9 billion cost. Of course, this is about 11% of DEC's current revenue, well above CPQ's 8 1/2% run rate, but there should be top line "synergy" as well (there better be). Figuring 300 million shares for the takeover (yeah, there's cash for half the deal, but this is how I do my calculations), this could add about $0.50/share to the current results. And, yes the PE would have to contract somewhat. So, that's where I see the potential play. Compaq is acquiring a poorly managed company and needs to turn around the operations and expand the business. Whether this can be accomplished or not reamins to be seen, but I guess I need to crunch some more numbers on this. Just speculating, but they'll probably offer Palmer some ceremonial title, e.g. Vice Chairman of the Board, and Director of Library Services (no offense to librarians intended), and then he'll retire to persue "personal Interests and spend time with my family", after "overseeing the sucessful integration of these 2 fine organizations". Hey, for all I know, I'm way off base. What do you think? Carl