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

To: Hawk who wrote (22500)	3/18/1998 10:04:00 PM
From: Tim Wash	Respond to of 97611

Article on merger: Value Of Compaq-Digital Deal Tumbles (03/18/98; 8:21 p.m. EST) By Joe Wilcox and Eric Hausman, Computer Reseller News Compaq's planned acquisition of Digital Equipment is not expected to be derailed, even as both companies struggle with internal issues. The value of the Compaq-Digital deal has dropped more than 13 percent because of Compaq's slumping stock price. The cash and stock transaction, originally valued at $9.6 billion, is now worth $8.4 billion based on Compaq's closing stock price of 23 13/16 Wednesday. In addition to issuing 150 million shares of new stock to complete the deal, Compaq also plans on spending $4.8 billion in cash. Compaq's stock woes are being compounded by inventory problems the company attributes to soft sales in North America. On March 6, the company stunned Wall Street by warning that it will not post a profit for the first quarter, instead showing sales that were flat with those of the year-ago quarter. Compaq officials said the company overestimated demand for commercial PCs and servers and shipped too much product. Still, financial analysts said Compaq's problems will not compromise the Digital deal. Kevin McCarthy, vice president at Donaldson Lufkin & Jenrette in New York, said the deal will go through no matter what happens to Compaq's stock price, and added that was one of the benefits of making the deal part cash and part stock. "Digital can't walk away based on a change in the stock price because there is no collar, and Compaq can't walk away if Digital's results [are disappointing]," he said. McCarthy said investors are concerned that Digital's product line is under so much pressure that it will be harder for Compaq to make the deal accretive to earnings, but added Compaq will try to write off as much as possible to achieve its financial goals once the deal is completed. In a call with Bear Stearns on March 18, Earl Mason, Compaq's chief financial officer, affirmed the company's position on Digital. He reiterated what CEO Eckhard Pfeiffer told financial analysts on March 6 when asked if Compaq was committed to the merger. "The answer is clearly yes," Pfeiffer responded. Mason told analysts that people don't understand the implications of the acquisition for the company's expansion into the enterprise. He told them Compaq would be a different company going forward and that competitors had started to take notice. In a related matter, Digital Wednesday started notifying some workers of pending layoffs, according to sources close to the company. Digital officials, however, denied layoffs started today. Analysts speculate Digital could eventually let 20,000 people go after the merger.