HP and Compaq merge to form a $ 87 billion giant

Palo Alto/Houston

Hewlett-Packard Company (HP) and Compaq Computer Corporation announced today
a definitive merger agreement to create an $ 87 billion global technology
leader. The new HP will offer the industry's most complete set of IT products
and services for both businesses and consumers, with a commitment to serving
customers with open systems and architectures.

The combined company will have #1 worldwide revenue position in servers,
access devices (PCs and handhelds) and imaging and printing, as well as leading
revenue position in services, storage and management software.

The merger is expected to generate cost synergies reaching approximately $
2.5 billion annually and drive a significantly improved cost structure. Based on
both company's last four reported fiscal quarters, the new HP would have
approximate pro forma assets of $ 56.4 billion, annual revenues of $ 87.4
billion and annual operating earnings of $ 3.9 billion. It would also have
operations in more than 160 countries and more than 1.45 lakh employees.

Carly Fiorina, Chairman and CEO, HP, will be Chairman and CEO of the new HP.
Michael Capellas, Chairman and CEO, Compaq, will be President. Capellas and four
other members of Compaq's current Board of Directors will join HP's Board upon
closing.

"This is a decisive move that accelerates our strategy and positions us
to win by offering even greater value to our customers and partners," said
Fiorina. "In addition to the clear strategic benefits of combining two
highly complementary organizations and product families, we can create
substantial shareowner value through significant cost structure improvements and
access to new growth opportunities. At a particularly challenging time for the
IT industry, this combination vaults us into a leadership role with customers
and partners--together we will shape the industry for years to come."

Added Capellas, "We are creating a new kind of industry leader--one
founded on customer success, world-class engineering, and best of breed products
and services. In sharp contrast to our competitors, we are committed to leading
the industry to open, market-unifying architectures and interoperability, which
reduce complexity and cost for our customers. With this move, we will change the
basis of competition in the industry."

Under the terms of the agreement, unanimously approved by both Boards of
Directors, Compaq shareowners will receive 0.6325 of a newly issued HP share for
each share of Compaq, giving the merger a current value of approximately $ 25
billion. HP shareowners will own approximately 64 percent and Compaq shareowners
36 percent of the merged company. The transaction, which is expected to be
tax-free to shareowners of both companies for US federal income tax purposes,
will be accounted for as a purchase.

The transaction is expected to be substantially accretive to HP's pro forma
earnings per share in the first full year of combined operations based on
achieving planned cost synergies. Cost synergies of approximately $ 2 billion
are expected in fiscal 2003, the first full year of combined operations. Fully
realized synergies are expected to reach a run rate of approximately $ 2.5
billion by mid-fiscal 2004. These anticipated synergies result from product
rationalization; efficiencies in administration, procurement, manufacturing and
marketing; and savings from improved direct distribution of PCs and servers.

Subject to regulatory and shareowner approvals and customary closing
conditions, the transaction is expected to close in the first half of 2002. In
connection with the transaction, both companies have adopted shareowner rights
plans; information on these plans will be filed today with the Securities and
Exchange Commission.

The merged entity will be headquartered in Palo Alto and retain a significant
presence in Houston, which will be a key strategic center of engineering
excellence and product development.

The new HP will be structured around four operating units that build on the
companies' similar go-to-market and product development structures to provide
clear customer and competitive focus. Leadership and estimated revenues
(calculated by combining the two companies' trailing four reported fiscal
quarters) are as follows:

• A $ 20 billion Imaging and Printing franchise to be led by Vyomesh Joshi,
  currently President (Imaging and Printing Systems), HP.
• A $ 29 billion Access Devices business to be led by Duane Zitzner,
  currently President (Computing Systems), HP.
• A $ 23 billion IT Infrastructure business, encompassing servers, storage
  and software, to be led by Peter Blackmore, currently Executive VP (Sales and
  Services), Compaq.
• A $ 15 billion Services business, with approximately 65,000 employees in
  consulting, support and outsourcing, to be led by Ann Livermore, currently
  President, HP Services.

The Chief Financial Officer of the combined entity will be Robert Wayman,
currently CFO of HP. The integration team will be led by Webb McKinney,
currently President of HP's Business Customer Organization, and Jeff Clarke, CFO
of Compaq.

Fiorina added, "Clearly, the potential of this combination is
compelling, but we understand the magnitude of the challenge and the need for
discipline and speed. We're helped by the fact that both companies have been
pursuing similar organizational structures and sales force models, and there is
immense talent resident in both organizations. We have done comprehensive
integration planning and have clear metrics to drive our success. We are
committed to achieving the synergies we have identified while maintaining our
competitive position and momentum in the marketplace."