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Layoffs loom in Compaq-DEC deal

Compaq discloses if its merger with Digital is finalized that it will take a restructuring charge and slash staff.

Compaq Computer disclosed for the first time today that the restructuring charge it will incur as a result of its megamerger with Digital Equipment will exceed $1 billion and include workforce reductions that some analysts estimate will affect at least 10,000 employees.

The PC giant, however, would not comment on the specific number of layoffs.

The computer maker's management, which is in the process of assessing and determining its integration plans with Digital, said in a filing with the Securities and Exchange Commission that the restructuring costs could be between $1.5 billion and $2 billion. The disclosure marks the first estimate that Compaq has made about costs associated with the merger, a spokeswoman said.

The company said efforts to meld the two companies will include "employee separations," elimination of duplicate facilities, and employee relocations.

Analysts have estimated that Compaq will lay off between 10,000 and 15,000 Digital employees as a result of the merger. That would represent between 19 percent and 27 percent of Digital's workforce of 54,000.

Lou Mazzucchelli, an analyst with Gerard Klauer Mattison, said it is too soon to tell if the $1.5 billion to $2 billion in merger charges are high or low.

"We had some preliminary numbers," he said, noting that, because it is unknown exactly how many employees will be laid off and given severance packages, the end result is difficult to gauge.

The restructuring costs include up to $13 million in severance packages to company executives who could be let go as a result of the merger, which is expected to be completed during the second calendar quarter of 1998.

Robert Palmer, Digital's chairman, president, and chief executive, would receive $6.45 million; Bruce L. Claflin, Digital's senior vice president of worldwide sales and marketing, would receive $1.7 million; Harold Copperman, senior vice president of Digital's digital products division, would get $1.7 million; John Rando, who is responsible for all aspects of Digital's worldwide service and support, would receive $1.7 million; and William Strecker, Digital's senior vice president and chief technical officer, would be granted $1.45 million, according to the filing.

Severance figures for Dick Fishburn, Digital's chief information officer, Vincent Mullarkey; chief financial officer, Thomas Siekman; general counsel; and Ilene Jacobs, senior vice president of worldwide human resources; were not listed in the filing because Digital is only required to disclose the compensation of certain executives.

In addition to the severance packages that were spelled out in the filing, there are 19 other Digital executives that could receive 1.5 times their base salary plus target incentive compensation. In addition, another group of employees could receive a lump sum payment equal to their annual salaries, according to Digital spokeswoman Shannon Lapierre.

Meanwhile, Digital will have to pay Compaq $240 million in cash if it terminates the deal. The fee will apply only if Digital shareholders do not approve the merger agreement at a special shareholder meeting set for June 11, or if the merger fails to occur before November 1, 1998. The fee also could be imposed if the Digital board withdraws or modifies its recommendation in favor of the merger.

If the merger is completed, holders of Digital common stock will receive $30 per share, plus 0.945 shares of Compaq common stock for each share of Digital stock. Compaq, which closed at 30.56 yesterday, estimated that Digital shareholders will receive about 9 percent of the 147.5 million outstanding Compaq shares.