Hewlett-Packard has announced it will buy Compaq Computer in an all-stock transaction valued at $25 billion.
If regulators approve the deal, the new entity will become the number two personal computer manufacturer behind Dell and a leader in the sales of business servers. The $87 billion company would have 145,000 employees and operations in 160 countries.
HP CEO Carly Fiorina will become chairman and CEO of the new company. Compaq CEO Michael Capellas will be president.
"This is a decisive move that accelerates our strategy and position us to win by offering even greater value to our customers and partners," said Fiorina in a statement.
Under the agreement, Compaq shareholders will receive .6325 new HP shares for each Compaq share.
HP said the new company will have four primary operating units: A 20-billion Imaging and Printing division, a $29 billion Access Devises division, a $23 billion IT Infrastructure arm and a $15 billion Services division.
"We are creating a new kind of industry leader--one founded on customer success, world-class engineering and best of breed products and services," said Capellas.
The acquisition comes as the PC industry is reeling from reduced demand for both home and business computers. In addition, Dell has spent much of the year leading a fierce price war against both HP and Compaq.
The new HP is clearly a response to the stiff PC competition, plus a challenge to IBM, which has successfully integrated computer manufacturing with business services.
Both companies are lagging behind IBM and Sun, said Summit Strategies Vice President Laurie McCabe. "They were kind of getting lost in the shuffle. They felt a need to find some strength in numbers."
While the size of the deal is impressive, McCabe said the real difficulty will be in merging two companies that are so similar. "Theyve got overlap in every single area with the exception of printers."
All that inward-focused energy could be a boon to IBM and Sun which can continue to focus on the market, McCable said.
The new company will be headquartered in Palo Alto, Calif.