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Compaq/Tandem Merger News
by Randy Befumo (TMF Templr)

(Originally appeared in the 06/23/97 Lunchtime News)

Leading personal computer manufacturers are concentrating on beefing up their business product lines. Only days after GATEWAY 2000 (NYSE: GTW) decided to get more serious about selling servers with the acquisition of ADVANCED LOGIC RESEARCH (Nasdaq: AALR), COMPAQ COMPUTER (NYSE: CPQ) has announced that it will get in the fault-tolerant computer business with the purchase of a TANDEM COMPUTERS (NYSE: TDM). Houston-based Compaq will purchase Tandem for approximately $2.6 billion in stock, exchanging 0.21 shares of Compaq common stock for each share of Tandem. Compaq slipped $1 3/4 to $105 this morning, while Tandem was up $6 1/4 to $21 1/4.

Compaq's ongoing transformation from a personal computer manufacturer to a soup-to-nuts vendor for both personal and enterprise computer systems has been occurred over a number of years. The addition of Tandem to the Compaq fold gives Compaq a high-performance vendor of scaleable, fault-tolerant systems that can run 24-hours a day. These systems are used for transaction processing and other high volume, critical computer needs. Tandem's main competitors include NCR CORP. (NYSE: NCR) and STRATUS (NYSE: SRA), with NCR probably the largest. Tandem seems well suited to Compaq because the company is transitioning to an Intel/Windows NT architecture for its computer systems, something that Compaq has a lot of experience with developing and servicing.

Compaq's acquisition of Tandem gives it a product to sell to large companies in search of processing intensive solutions. Compaq Chief Executive Eckhard Pfeiffer believes that this acquisition has dramatically increased Compaq's potential market, "Our total addressable market has been doubled to approximately $650 billion." Compaq apparently does this at a relatively good price, as it is buying Tandem for about 1.4 times sales. Pfeiffer stated that the merger should be accretive to earnings immediately, meaning that Compaq will now be able to earn more money with the addition of Tandem. Unfortunately for Compaq shareholders, this may not change the published earnings estimates because even as Tandem adds to earnings, the merger will be done as a "pooling-of-interests," so Compaq will not be able to repurchase the stock it announced it would a few weeks ago.

[RELEVANT MESSAGE BOARDS: Advanced Logic Research (Nasdaq: AALR) * Compaq Computer (NYSE: CPQ) * Gateway 2000 (NYSE: GTW) * NCR Corp. (NYSE: NCR) * Tandem Computers (NYSE: TDM)]

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