"The instability of the economy is equaled only by the instability of economists." -- John Henry Williams

Hewlett-Packard Ready for Compaq Parking

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By Rick Aristotle Munarriz (TMF Edible)
September 4, 2001

Is Hewlett-Packard's (NYSE: HWP) latest vehicle a Compaq (NYSE: CPQ)? In a troubled computing sector, having two of the industry's three biggest players come together either amounts to a show of force or a pair of roughed-up sicklies panhandling for mutual support.

With a deal valuing Compaq at just over $25 billion, stockholders will receive 0.6325 shares of HP for every Compaq share owned. That translates into a meager 19% premium over what Compaq was trading for last week and that sum might be trimmed even further today if the market does not approve of the deal and punishes HP stock lower.

The combined company will bring with it some lofty sums. Between annual trailing revenues of $87.4 billion and projected cost savings of $2.5 billion, there is nothing small about this coupling. Unfortunately, the carry-on baggage is heavy, too.

Carly Fiorina, who came to head up HP after rising up through the ranks at Lucent (NYSE: LU) when Lucent was cool, has proven to be mortal. Despite a wealth of fresh ideas and injecting much-needed optimism into the mix, HP is trading for less than half what it was when Fiorina took charge in the summer of 1999.   

There are strengths. There will be synergies. HP will become the world leader in the personal computer, imaging and printing, server and handheld markets. Unfortunately, given the sector's recent malaise, it's not clear if those are markets worth dominating in the near-term. 

News to Go

It's a driller thriller as Santa Fe (NYSE: SDC) announced it would be acquiring Global Marine (NYSE: GLM). The marriage of the offshore drillers would create a company that operates just over 100 rigs worldwide. Billed as a merger of equals, GlobalSantaFe will have a $6 billion market cap and trailing annual revenues of $2 billion. Can you dig it?

Strumming along, musical instrument and recording gear superstore chain Guitar Center (Nasdaq: GTRC) reaffirmed its third- and fourth-quarter analyst estimates. Playing expectations by ear, the company also expects healthy same-store sales gains in the 5%-7% range through the rest of the fiscal year. In a market that's already heard company after company water down original forecasts this quarter, that is music to Wall Street's ears.

Remec (Nasdaq: REMC) to sender? The wireless technology company reported a second-quarter loss of $0.14 a share. That was nearly three times the projected deficit of a nickel a share. To compensate for sluggish demand the company will be laying off 20% of its workforce.

Check out these earnings: Albertson's (NYSE: ABS) bagged second-quarter earnings, topping expectations by a penny. While sales ticked up for the country's second-largest supermarket chain, Albertson's was able to overcome lower gross margins in producing its market-besting quarter.

It's jackpot time for index fund managers. This morning, leading slot machine maker International Game Technology (NYSE: IGT) joins the S&P 500 Index. It will be taking the place of the beleaguered Broadvision (Nasdaq: BVSN), which has seen its stock plunge by a stunning 98% since it peaked along with the Nasdaq last year. It's fitting that a gaming stock take its place, no?

Rick Aristotle Munarriz believes that breakfast is the most important meal of the day. So eat up! His breakfast suggestion for today is a French fry omelet. Fry your choice of shoestrings, crinkle cut, or tater tot potatoes and scatter them inside a three-egg omelet. Add salt and serve with an aioli sauce. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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