Sources within Compaq and Digital Equipment have confirmed that the companies came close to merger on two occasions in the past two years.
Talks are dead, at least for now, reported the 'Wall Street Journal' this week, but in 1995 the partners got as far as agreeing a ballpark price for Compaq to acquire Digital. The figure would have been between $9 billion and $10 billion, but Digital backed off over "management and structural issues".
Negotiations were then re-opened the following September, as reported by 'VNU Newswire', but again fell apart.
Both companies officially declined to comment, but some industry watchers still believe Compaq should make another bid for the once-mighty systems maker. Jon Oltsik, in a Forrester Research paper, claims that Compaq is "approaching a crossroads" where it needs to form a clear strategy for the enterprise. In its traditional markets, Compaq is being threatened by direct sales giant Dell and cannot match IBM and Hewlett-Packard in the server space without a serious professional services arm, argues Oltsik. Digital's services division is said to have been one of the chief attractions for Compaq. Nor does Compaq's growing networking division have the type of high end products that appeal to enterprises, says Forrester.
The analyst's advice is that Compaq should build its enterprise strategy on NT, offering super-fast servers running Digital's Alpha processor and a global services organisation. Digital would also bring Compaq its first direct salesforce - a must in the corporate market - and a huge installed base that is still waiting to convert from Digital's own VMS system. In addition, Compaq could use Digital's other units, such as storage and the Altavista search engine, to provide a diverse offering to companies requiring a one-stop shop - or could dispose of these divisions.
However, he believes Compaq should only pay about $4 billion for the computer maker, less than half of the figure discussed in 1995. He also thinks that the networking division - which some observers believed was a powerful attraction last year - should be sold off, since it would take a massive investment to enable it to compete with Cisco. Finally, Digital Unix and VMS should be abandoned and the user base migrated to NT to ensure a clear product strategy.
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