Digital Equip Upgraded,Off S&PWatch Re:Acq by Compaq

Business Wire,  July 1, 1998  

Tags: Compaq Computer Corp.

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NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/1/98--Standard & Poor's today withdrew its double-'B'-plus senior debt and corporate credit ratings on Digital Equipment Corp. and raised its preferred stock rating on the company to single-'A'-minus from double-'B'-minus. The ratings were removed from CreditWatch, where they were placed Feb. 4, 1998.

Additionally, Standard & Poor's affirmed its single-'A'-minus corporate credit rating on Compaq Computer Corp.

The upgrade reflects the completion of Compaq's acquisition of Digital and Compaq's strong financial profile. The withdrawal of Digital's senior debt rating follows Compaq's completion of its cash tender offer for Digital's debt.

The ratings reflect Compaq's strong financial profile, despite the extremely competitive nature of the personal computer (PC) hardware industry. Houston, Texas-based Compaq is the leading worldwide manufacturer of PCs and PC systems. The Digital acquisition expands Compaq's product line breadth by adding global customer service capabilities. However, the costs of integrating Digital's operations will be significant (in the $2 billion area), which includes the workforce reduction of more than 15,000 positions. Compaq's balance sheet and financial flexibility should remain strong despite Digital's lower profitability levels.

OUTLOOK: NEGATIVE The outlook reflects Standard & Poor's concerns about potential integration issues, given the size of the operations being combined and the potential for management distraction in a very fast-paced industry environment. A sustained decline in profitability and cash flow measures could lead to a downgrade, Standard & Poor's said. -- CreditWire

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