Some 15,000 jobs in the computer industry are expected to be lost following the announcement yesterday by Hewlett-Packard that it plans to buy Compaq Computer for $25 billion in stock.
Wall Street gave a thumbs down to the deal, which on paper would create the world's largest supplier of personal computers and server computers, and by afternoon the value of the acquisition had fallen to just more than $21 billion.
Compaq CEO Mr Michael Capellas said the combined firms would cut about 15,000 jobs in addition to the near 15,000 the two companies are already in the process of eliminating individually to reduce costs.
After the job cuts, the combined company would employ about 135,000 employees worldwide, he said. Hewlett Packard and Compaq have operations in 160 countries and jointly employ 4,000 people in the Republic, but Mr Capellas told the press conference that it was too early to give a geographical breakdown of where the job cuts will fall. He said they would be mainly in administration and sales.
With combined revenues of $87 billion the company will leap ahead of Dell Computer as the world's top PC maker and rival technology giant IBM in sales and servicing.
The deal will have to be vetted by regulatory authorities in both the United States and Europe, as both Hewlett-Packard and Compaq have extensive business dealings in Europe and North America While there are unlikely to be competition problems in the PC business in Europe, the new company may have to shed some assets in other areas to satisfy regulators. The merger "makes us a more effective competitor, and an even more effective partner. If you don't believe it, watch," Hewlett-Packard chief executive Ms Carly Fiorina told a news conference in New York.
Analysts said the enlarged Hewlett-Packard would also add crucial momentum to a drive sheaded by microchip maker Intel in the high-end computing market to make its Itanium line of microprocessors the standard for corporate servers just as chips are now the standard brand in the PC market.
On Wall Street shares in Hewlett-Packard and Compaq fell sharply but the share value of rival Dell went up. Analysts expressed doubts about the ability of the combined company to cut costs deeply enough to give it an edge in pricing.
The deal offered a premium of about 19 per cent on Compaq based on Friday's stock prices, but that premium, like the price of the deal, sank with the fall in HP stock.
The deal was approved by both boards after several months of secret negotiations.
Ms Fiorina becomes CEO of the new company which will be based at HP headquarters in Palo Alto, California. Mr Capellas will become president.
The company will retain a large operation at Compaq HQ in Houston, Texas.
If the deal goes through, Compaq shareholders will receive 0.6325 shares of H-P for each share owned.
The new H-P will be 64 per cent owned by H-P shareholders and 36 per cent owned by Compaq shareholders. Capellas and four other Compaq directors will join HP's board.
