Compaq Computer declined to raise its bid for Proxicom on Friday, allowing the Internet services company to proceed with plans to merge with its other suitor, Dimension Data Holdings, a South African tech company.
Proxicom (Nasdaq: PXCM) opened down 26 cents to $7.38, and Compaq (NYSE: CPQ) was unchanged at $16.10.
Compaq had been hoping to expand its services offering with the Proxicom purchase. Proxicom, based in Reston, Va., designs business-to-business e-commerce sites and offers support for, among other things, application development and network design.
"Compaq intends to aggressively drive its strategy of expanding our services capabilities," Peter Blackmore, Compaq executive vice president of worldwide sales and services, said in a statement. "However, at this time, we don't feel current economics warrant increasing our bid for Proxicom."
Analysts had predicted that Compaq would would be unlikely to raise its bid for Proxicom.
The Internet services company on Thursday told Compaq to up its bid or it would take the offer from Dimension Data. It gave Compaq until 5 p.m. EDT on Monday, May 14, to make a more favorable offer. Since it has declined to do so, Compaq will be entitled to a $10 million termination fee.
The Dimension offer was made public last Monday, a week after Compaq made its bid for Proxicom. At that time, the company announced that it had received an offer of $7.50 per share, or about $347 million, from Dimension Data. That offer constituted a "superior proposal" to Compaq's $266 million offer, which valued Proxicom at $5.75 per share.
Dimension Data designs computer and communications networks and provides customer relationship management and procurement software.
The bidding war came as somewhat of a surprise to industry watchers. The services industry has been rocked by bad news and tough economic times. Proxicom's stock hit a new low recently, and the company last week reported a loss of 13 cents a share, in line with reduced estimates. Other consulting companies such as Razorfish (Nasdaq: RAZF), IXL Enterprises (Nasdaq: IIXL) and Viant (Nasdaq: VIAN) have struggled as well.