FC: Hewlett-Packard says it will buy Compaq in $25 billion deal

[Declan McCullagh <declan () well com>]

New York Times coverage:
http://www.nytimes.com/2001/09/04/business/04DEAL.html

Press release follows.

-Declan

********

http://www.hp.com/hpinfo/newsroom/press/04sep01a.htm
Message-Id: <20010904141030.1E0811050C () cluebot com>

HEWLETT-PACKARD AND COMPAQ AGREE TO MERGE, CREATING $87 BILLION GLOBAL
TECHNOLOGY LEADER

   PALO ALTO, CA and HOUSTON, TX, September 3, 2001
     _________________________________________________________________

   Hewlett-Packard Company (NYSE: HWP) and Compaq Computer Corporation
   (NYSE: CPQ) announced today a definitive merger agreement to create an
   $87 billion global technology leader. The new HP will offer the
   industry's most complete set of IT products and services for both
   businesses and consumers, with a commitment to serving customers with
   open systems and architectures. The combined company will have #1
   worldwide revenue positions in servers, access devices (PCs and
   hand-helds) and imaging and printing, as well as leading revenue
   positions in IT services, storage and management software.

   The merger is expected to generate cost synergies reaching
   approximately $2.5 billion annually and drive a significantly improved
   cost structure. Based on both companies' last four reported fiscal
   quarters, the new HP would have approximate pro forma assets of $56.4
   billion, annual revenues of $87.4 billion and annual operating
   earnings of $3.9 billion. It would also have operations in more than
   160 countries and over 145,000 employees.

   Carly Fiorina, chairman and chief executive officer of HP, will be
   chairman and CEO of the new HP. Michael Capellas, chairman and chief
   executive officer of Compaq, will be president. Capellas and four
   other members of Compaq's current Board of Directors will join HP's
   Board upon closing.

   "This is a decisive move that accelerates our strategy and positions
   us to win by offering even greater value to our customers and
   partners," said Fiorina. "In addition to the clear strategic benefits
   of combining two highly complementary organizations and product
   families, we can create substantial shareowner value through
   significant cost structure improvements and access to new growth
   opportunities. At a particularly challenging time for the IT industry,
   this combination vaults us into a leadership role with customers and
   partners -- together we will shape the industry for years to come."

   Capellas said, "We are creating a new kind of industry leader -- one
   founded on customer success, world-class engineering, and best of
   breed products and services. In sharp contrast to our competitors, we
   are committed to leading the industry to open, market-unifying
   architectures and interoperability, which reduce complexity and cost
   for our customers. With this move, we will change the basis of
   competition in the industry."

   Under the terms of the agreement, unanimously approved by both Boards
   of Directors, Compaq shareowners will receive 0.6325 of a newly issued
   HP share for each share of Compaq, giving the merger a current value
   of approximately $25 billion. HP shareowners will own approximately
   64% and Compaq shareowners 36% of the merged company. The transaction,
   which is expected to be tax-free to shareowners of both companies for
   U.S. federal income tax purposes, will be accounted for as a purchase.

   The transaction is expected to be substantially accretive to HP's pro
   forma earnings per share in the first full year of combined operations
   based on achieving planned cost synergies. Cost synergies of
   approximately $2.0 billion are expected in fiscal 2003, the first full
   year of combined operations. Fully realized synergies are expected to
   reach a run rate of approximately $2.5 billion by mid-fiscal 2004.
   These anticipated synergies result from product rationalization;
   efficiencies in administration, procurement, manufacturing and
   marketing; and savings from improved direct distribution of PCs and
   servers. Subject to regulatory and shareowner approvals and customary
   closing conditions, the transaction is expected to close in the first
   half of 2002. In connection with the transaction, both companies have
   adopted shareowner rights plans; information on these plans will be
   filed today with the Securities and Exchange Commission.

   The merged entity will be headquartered in Palo Alto and retain a
   significant presence in Houston, which will be a key strategic center
   of engineering excellence and product development.

   The new HP will be structured around four operating units that build
   on the companies' similar go-to-market and product development
   structures to provide clear customer and competitive focus. Leadership
   and estimated revenues (calculated by combining the two companies'
   trailing four reported fiscal quarters) are as follows:

     * A $20 billion Imaging and Printing franchise to be led by Vyomesh
       Joshi, currently president, Imaging and Printing Systems, of HP.
     * A $29 billion Access Devices business to be led by Duane Zitzner,
       currently president, Computing Systems, of HP.
     * A $23 billion IT Infrastructure business, encompassing servers,
       storage and software, to be led by Peter Blackmore, currently
       executive vice president, Sales and Services, of Compaq.
     * A $15 billion Services business with approximately 65,000
       employees in consulting, support and outsourcing to be led by Ann
       Livermore, currently president, HP Services.

   The chief financial officer of the combined entity will be Robert
   Wayman, chief financial officer of HP. The integration team will be
   led by Webb McKinney, currently president of HP's Business Customer
   Organization, and Jeff Clarke, chief financial officer of Compaq.

   Fiorina concluded, "Clearly, the potential of this combination is
   compelling, but we understand the magnitude of the challenge and the
   need for discipline and speed. We're helped by the fact that both
   companies have been pursuing similar organizational structures and
   sales force models, and there is immense talent resident in both
   organizations. We have done comprehensive integration planning and
   have clear metrics to drive our success. We are committed to achieving
   the synergies we have identified while maintaining our competitive
   position and momentum in the marketplace."

   Investment Community and Media Event Information

   The companies will host a meeting for the investment community
   Tuesday, Sept. 4, at 9 a.m. EDT at the Equitable Building in New York
   City, 787 Seventh Avenue (between 51st & 52nd streets) in the
   Auditorium, Lower Level. Those unable to attend may listen by calling
   (888) 849-9184 (US) or (212) 896-6074 (international), using
   reservation number: 19649821. The event can also be accessed via
   audiocast at www.hp.com or www.compaq.com. The slides used for this
   presentation will be available on each company's website 10 minutes
   prior to the start of the event. A replay will be available for 14
   days following the meeting at (800) 633-8284 (US) or (858) 812-6440
   (international), using reservation number: 19649821. There will also
   be a question and answer session for the media at 10:30 a.m. EDT
   following the analyst meeting, also in the Equitable Auditorium. Those
   unable to attend may participate by calling (888) 754-3420 (US) or
   (212) 676-5416 (international), using reservation number: 19650338.
   The event can also be accessed via audiocast at www.hp.com or
   www.compaq.com. A replay will be available for 14 days following the
   meeting at (800) 633-8284 (US) or (858) 812-6440 (international),
   using reservation number: 19650338.

   Fact Sheet

   A fact sheet related to the merger is attached to this press release.

   Calculation of Combined Revenues

   The statements of combined revenues in this release and the attached
   fact sheet are estimates and have been calculated by adding similar
   category information from the companies' separate filings with the
   Securities Exchange Commission for each of their past four fiscal
   quarters. Because the companies have different fiscal year-ends, these
   estimates do not track a matching time period. The measurement method
   described above may result in amounts that differ from amounts
   resulting from other methodologies the companies may use in the
   future.

   About HP

   Hewlett-Packard Company -- a leading global provider of computing and
   imaging solutions and services -- is focused on making technology and
   its benefits accessible to all. HP had total revenue from continuing
   operations of $48.8 billion in its 2000 fiscal year. Information about
   HP and its products can be found on the World Wide Web at www.hp.com.

   About Compaq

   Compaq Computer Corporation is a leading global provider of enterprise
   technology and solutions. Compaq designs, develops, manufactures and
   markets hardware, software, solutions and services, including
   industry-leading enterprise storage and computing solutions,
   fault-tolerant business-critical solutions, communication products,
   and desktop and portable personal computers that are sold in more than
   200 countries. Information on Compaq and its products and services is
   available at www.compaq.com.

   Additional Information and Where to Find It

   HP intends to file a registration statement on Form S-4 in connection
   with the transaction, and HP and Compaq intend to mail a joint proxy
   statement/prospectus to their respective stockholders in connection
   with the transaction. Investors and security holders of HP and Compaq
   are urged to read the joint proxy statement/prospectus when it becomes
   available because it will contain important information about HP,
   Compaq and the transaction. Investors and security holders may obtain
   a free copy of the joint proxy statement/prospectus (when it is
   available) at the SEC's web site at www.sec.gov. A free copy of the
   joint proxy statement/prospectus may also be obtained from HP or
   Compaq. HP and its executive officers and directors may be deemed to
   be participants in the solicitation of proxies from the stockholders
   of HP and Compaq in favor of the transaction. Information regarding
   the interests of HP's officers and directors in the transaction will
   be included in the joint proxy statement/prospectus. Compaq and its
   executive officers and directors may be deemed to be participants in
   the solicitation of proxies from the stockholders of HP and Compaq in
   favor of the transaction. Information regarding the interests of
   Compaq's officers and directors in the transaction will be included in
   the joint proxy statement/prospectus. In addition to the registration
   statement on form S-4 to be filed by HP in connection with the
   transaction, and the joint proxy statement/prospectus to be mailed to
   the stockholders of HP and Compaq in connection with the transaction,
   each of HP and Compaq file annual, quarterly and special reports,
   proxy and information statements, and other information with the SEC.
   Investors may read and copy any of these reports, statements and other
   information at the SEC's public reference rooms located at 450 5th
   Street, N.W., Washington, D.C., 20549, or any of the SEC's other
   public reference rooms located in New York and Chicago. Investors
   should call the SEC at 1-800-SEC-0330 for further information on these
   public reference rooms. The reports, statements and other information
   filed by HP and Compaq with the SEC are also available for free at the
   SEC's web site at www.sec.gov. A free copy of these reports,
   statements and other information may also be obtained from HP or
   Compaq.

HP/COMPAQ FACT SHEET

   Transaction Summary:

   Structure: Stock-for-stock merger
   Exchange Ratio: 0.6325 of an HP share per Compaq share
   Current Value: Approximately $25 billion
   Ownership: HP shareholders 64%; Compaq shareholders 36%
   Accounting: Purchase
   Expected Closing: First half of 2002

   Overview:

     * Creates an $87 billion global technology leader, with the
       industry's most complete set of IT products and services for both
       businesses and consumers.
     * New HP would be the #1 global player in servers, imaging &
       printing, and access devices (PCs & hand-helds), as well as Top 3
       player in IT services, storage and management software.
     * The combination furthers each company's commitment to open,
       market-unifying systems and architectures and aggressive direct
       and channel distribution models.
     * Combined company can create substantial shareowner value through
       significant cost structure improvements and access to new growth
       opportunities.
     * Transaction expected to be substantially accretive to pro forma
       EPS in first full year of combined operations.
     * The merger is expected to generate cost synergies of approximately
       $2.0 billion in fiscal 2003, the first full year of operations;
       fully realized synergies are expected to reach a run rate of
       approximately $2.5 billion by mid-fiscal 2004.
     * New HP would have operations in more than 160 countries and over
       145,000 employees.

   Key Facts
   (last 4 qtrs): HP Compaq Pro Forma Combined
   Total
   Revenues $47.0 billion $40.4 billion $87.4 billion
   Assets $32.4 billion $23.9 billion $56.4 billion
   Operating
   Earnings $2.1 billion $1.9 billion $3.9 billion

   Leadership:

     * Board of Directors: 5 Compaq directors to join HP Board
     * Chairman and Chief Executive Officer: Carly Fiorina
     * President: Michael Capellas
     * Chief Financial Officer: Robert Wayman
     * Imaging & Printing: Vyomesh Joshi
     * Access Devices: Duane Zitzner
     * IT Infrastructure: Peter Blackmore
     * Services: Ann Livermore
     _________________________________________________________________




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