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Compaq, Digital unveil merger

$10 billion deal creates rival for IBM

In a nearly $10 billion deal, computing giants Compaq Computer Corp. and Digital Equipment Corp. jointly announced their merger Monday, creating a $40 billion powerhouse that rivals IBM Corp. as hardware’s heaviest hitter.

The merger’s fit is considered nearly optimal – a view reflected by Wall Street’s enthusiastic response to the announcement. Compaq shares held steady, while Digital’s stock price jumped 22%.

Under the terms of the deal, announced jointly by Compaq CEO Eckhard Pfeiffer and Digital chieftain Robert Palmer, Compaq would acquire each share of Digital for $30 and around a share of Compaq stock, a deal worth just over $9.6 billion. (Nearly $5 billion of that was all cash.)

One possible casualty is Digital’s ultrafast Alpha microprocessor. Used by a variety of users, including post-production and digital effects houses as a lower-cost alternative to Silicon Graphics’ Unix-based workstations, the Alpha-based business may be phased out as Compaq’s practical development philosophy takes hold.

Neither Palmer nor Pfeiffer would comment definitively on Alpha’s future.

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