Compaq Agrees To Buy Digital $9.6 Billion Deal Creates New Computer Powerhouse

Compaq Computer Corp. has agreed to buy Digital Equipment Corp. for $9.6 billion in a deal that creates a new computer powerhouse, from selling consumer PCs to net-worked business machines.

Compaq already is the world’s biggest maker of PCs but wants to be among the three largest computer manufacturers overall by the turn of the century by expanding into powerful business machines.

Digital is a major maker of the big computers that run networks of smaller machines. But after pioneering the computer network as an alternative to the mainframe, Digital missed the explosion in demand for desktop computers this past decade and has slipped badly in recent years.

Compaq said it planned to pay $4.8 billion in cash and issue 150 million shares of common stock in the deal announced Monday.

By selling a full range of business computers, Compaq will be able to strengthen its presence in the lucrative market of helping businesses set up, run and service their computer networks. Digital has a staff of 23,000 and revenue of $6 billion in the services business.

“Now we are rounding out the entire spectrum in corporate enterprise computing,” Compaq chief executive Eckhard Pfeiffer said in a telephone interview Monday.

Pfeiffer said the companies would disclose details of cost savings or layoffs when the deal is completed in three to four months. Digital will retain its name. Robert Palmer, Digital’s chairman and chief executive officer, will remain at the combined company, Pfeiffer said.

The Digital sale marks the final dismantling of a formerly dominant player in business computing. Once the world’s third-largest computer maker, Digital has lost billions of dollars and shed half its work force since its heyday in the late-1980s.

Digital last fall sold its network-equipment unit, which supplies technology for routing information between computers, for $430 million to Cabletron Systems Inc. Digital also sold its Alpha microchip manufacturing operations to Intel Corp. for $1.5 billion in an agreement that also settled Digital’s copyright infringement suit against Intel.

Based in Houston, Compaq ranks fifth in the overall computer industry today with sales of $24.6 billion last year. Maynard. Mass.-based Digital had $13.1 billion in revenues last year.