Compaq-Digital rumours rekindled

The rumour mill went into crank mode Friday when a Wall Street news service reported that Compaq Computer Corp. is seriously considering buying Digital Equipment Corp.

The rumour mill went into crank mode Friday when a Wall Street news service reported that Compaq Computer Corp. is seriously considering buying Digital Equipment Corp. for $73 per share, or roughly $20 billion.

Wall Street Ticker Inc., a service that counts among its subscribers several influential Wall Street brokerage firms, advised trading firms to buy Digital shares at $49.75, claiming Digital has become very attractive to Compaq and saying the announcement was "close."

When this rumour first circulated about two years ago, it was reported that Compaq was willing to pay as much as $10 billion for Digital. But Digital is now more attractive after recently settling a patent infringement suit with Intel Corp. as well as becoming healthier financially.

What's more, the company's shares are likely to get a boost if the much-bruited $500 million sale of its networking hardware business to Cabletron Systems Inc. comes to pass.

"Compaq has talked a lot about being a $50 billion company by the end of the millennium, and the only way they are going to pull that off is through outside acquisitions," said Wendy Ambramowitz, an analyst at Argus Research. "This deal has been around for years. I don't see any particular reason - nor have I heard from anyone - why (Compaq) would do this now."

Analysts said the news service report didn't influence their buying or selling of Digital shares, and unless something more definitive comes to light, that they would probably dismiss the report as they have so many times before.

Digital shares did close up $1.75 per share on Friday to $50.75, but what impact the report had is unknown. Compaq's stock closed down $2.69 per share to $63.81, following the downward trend that all computer makers followed.

"This is one that just keeps coming around and coming around," said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. "I haven't heard a peep from any of my sources that would lead me to believe it this time around." On paper, the deal would seem to make sense.

"It's plausible," Mazzucchelli added. "I'm not saying it's going to happen or that it's not going to happen. But from a realistic, bottom-line perspective, it's very do-able."

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