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Compaq buys Tandem

The leader in PC desktops and servers increases its presence in the enterprise market with the $3 billion acquisition of Tandem.

Hoping to bolster its position as a computing solutions provider for enterprise networks, Compaq Computer (CPQ) announced an agreement today to acquire Tandem Computers (TDM) for approximately $3 billion in stock.

Compaq, the leading PC server and desktop player in the world, acquires industrial-strength systems expertise with the purchase of Tandem, a company with annual revenues of $1.9 billion.

Under terms of the agreement, Tandem will become a wholly owned subsidiary of Compaq. As part of the merger, Compaq will issue 29 million shares of stock, with an exchange ratio of .21 shares of the Houston-based PC giant's offering for every Tandem share.

A press conference to cover details of the merger is scheduled for this afternoon.

"Our total addressable market has been doubled to about $650 billion," said Eckhard Pfeiffer, chief executive of Compaq, in a statement. "This offers opportunity for significant revenue growth. We will truly offer complete solutions, from handhelds and portables to networked desktops and workstations, all the way to Windows NT servers and the Himalaya range of massively parallel commercial systems."

Pfeiffer added that the company's "field resources will more than double" with the buyout.

"The phenomenal rate of change in the IT industry demands a new business model, one that depends on strategic partnering to stay competitive and be a market maker," said Roel Pieper, chief executive of Tandem. "This merger is based on this concept and will provide the added benefit of creating a broader range of open customer solutions to the market."

Pieper will remain CEO of the Tandem subsidiary and take on the additional title of Compaq senior vice president, reporting to Pfeiffer. Enrico Pesatori will continue as president and chief operating officer of Tandem.

Compaq, with annual revenues of more than $18 billion, has long stated a desire to become an end-to-end system provider, capable of offering customers everything from PCs to networking equipment to iron-clad systems like the Himalaya line of nonstop servers that Tandem provides.

The two companies have worked together closely in the last year as the industry has moved increasingly toward systems that cluster several servers together. Tandem has moved some of its clustering technology, including a server interconnection called ServerNet, to the PC server arena in hopes of taking a chunk of the large revenues expected once Microsoft's Cluster Server software rolls out later this year.