H-P Will Buy Computer Firm for $476 Million

Silicon Valley computer giant Hewlett-Packard Co. said today it has agreed to buy Apollo Computer Inc., a fast-growing engineering work-station company, for $476 million in cash.

The acquisition of the upstart computer maker from Chelmsford, Mass., is an early sign of the consolidation that many expect to shake up the increasingly competitive computer business, analysts said.

While small compared with mergers that have taken place in other industries, the Apollo buyout will be one of the biggest yet in the computer industry, where acquisitions of major companies have been relatively rare until recently.

Hewlett-Packard, an industry pioneer founded in 1939, had sales of $9.8 billion last year, compared with $654 million for Apollo, which was founded in 1980.

50% Surge

The offer from Hewlett-Packard reflects a large premium over Apollo’s recent trading price. The stock, which closed unchanged Tuesday at $8.125 on the NASDAQ over-the-counter market, surged today to $12.75, a rise of about $4.75, or more than 50%, when it opened after the announcement.

The terms of the agreement call for Hewlett-Packard to acquire the stock in a tender offer to begin within five business days, the companies said.

Hewlett-Packard’s proposed acquisition is viewed as an attempt to hold onto a leading position as the supplier of computer products for the engineering and scientific community.

Although its sales have risen strongly, Apollo, one of the early work-station producers, has seen its earnings eroded due to increased competition from computer giants such as International Business Machines Corp., Digital Equipment Corp. and Hewlett-Packard.

The big companies have been attracted to the growth prospects in the work-station field, as mainframe and office computer market growth has remained relatively stagnant.