Compaq: Tandem a growth engine
Compaq Computer Corp., which has been talking about making an acquisition for several months now, finally dropped the other shoe, and announced it will acquire server maker Tandem Computers Inc. for $3 billion.
The acquisition gives Compaq the ability to provide high-end servers, notably, Tandem's Himalaya line of massively parallel systems. Tandem's customers include banks and other companies that need fail-safe computers.
Compaq has been rumored to be in the market for a direct-mail PC maker in order to counter the rapid growth of, in particular, Dell Computer Corp. While Tandem is in the other direction, Compaq billed it as a growth engine.
"Our total addressable market has been doubled to approximately $650 billion. This offers opportunity for significant revenue growth," Compaq CEO Eckhard Pfeiffer said in a release.
Compaq and Tandem have worked together on clustering technologies, and said today that the deal will help them push development of technology for server clustering, on-line transaction processing and electronic commerce. "The NonStop computing capabilities of Tandem's Himalaya systems will represent a technology foundry to fuel growth and adoption of enterprise NT," Tandem CEO Roel Piper said in a statement. Piper added that the combined companies will push Tandem's ServerNet and NonStop Software as open standards.
The deal calls for Compaq to issue about 29 million shares of common stock to Tandem shareholders. Following the completion of the merger, expected in the third quarter, Tandem will become a wholly-owned subsidiary of Compaq. The deal will be accounted for as a pooling of interests, and will thus be tax-free for Compaq. Because of the acquisition, Compaq is canceling its stock repurchase program, Earl Mason, Compaq's chief financial officer, said in a release.
Mason said earlier this year that the company was looking at acquisition targets, and said one criteria would be that synergies from any acquisition would be greater than the acquisition's cost. Speculation had focused on direct-mail vendors, notably Gateway 2000 Inc. and Micron Inc. Today, Mason said that acquiring Tandem and its $1.9 billion in sales, would be "immediately accretive, meeting all of Compaq's economic tests."
Piper will continue to serve as CEO of Tandem, and will take on the title of senior vice president of Compaq, reporting to Pfeiffer. Enrico Pesatori will continue as president and chief operating officer of Tandem.