Compaq, the personal computer company, is to buy Digital for $9.6 billion (£6.76 billion), in the biggest buyout to date in the computer industry. Compaq is the number one supplier of PCs in the world, while Digital is a leading maker of high-powered computers, known as work stations and servers.

The takeover - which is being billed as a merger - will create one of the top information technology companies in the world. Compaq said the deal was the most important merger in the history of the computer industry.

Both companies have a strong presence in Ireland. Digital employs 1,100 people in Dublin and Galway. Compaq, which sources in excess of £350 million of computer parts here every year, set up a call centre in Dublin last year. It currently employs 250 staff and plans to increase this to 650.

It is unclear how the merger will affect both groups' operations in Ireland. A statement from Digital Ireland welcomed the move.

"The combined strengths of the two companies in the IT market will provide significant business opportunities," it said. "We are confident of the long term benefits for our employees, customers and partners."

However, the statement cautioned that details what exactly the merger will mean in each individual market will be worked out over the next four to five months. "Until the transaction is completed it is business as usual for both companies," it said.

Compaq management in Ireland did not comment. However, Mr Joe McNally, chief executive of Compaq UK was reported yesterday as saying: "There will obviously be a business review and, subject to shareholder agreement, we intend to run the company as two groups autonomously until the review is conducted.

"We will identify new market opportunities and increase the head count."

Under the terms of the agreement Digital will become a wholly-owned subsidiary of Compaq. The deal should be completed by June.

Compaq said it will issue about 150 million shares of Compaq stock and pay about $4.8 billion (£3.38 billion) in cash.

The takeover has been on the cards for some time. As far back as 1995 it was reported that the two companies were in talks. In 1996 it was rumoured that Digital had walked away from a Compaq offer of $9 billion - $10 billion.

In a statement last night, Digital's chairman, Mr Robert Palmer, said the merger gives Digital tremendous reach and credibility in the marketplace. "It gives us the scale and resources to make continued investments in our key technologies and services," he said.

"Customers will benefit from the very complementary strengths of both companies," he added.

He said that together the companies will offer customers the greatest concentration of Enterprise Windows NT products and lifecycle products available in the market today.

Mr Eckhard Pfeiffer, president and chief executive of Compaq, said the company put "tremendous value" on the customer relationships Digital has cultivated over the past 40 years.

"We are committed to supporting these key customer relationships by investing in Digital's strategic assets, particularly its worldwide service organisation, as well as its 64-bit leadership with Alpha microprocessors, Open VMS, Digital UNIX and Windows NT enterprise systems, open storage and software products," he said.

He added that Digital's "focused enterprise strategy", coupled with demonstrable improvements in operational performance made it a timely choice for them.

Mr Pfeiffer said profits had doubled in Ditigal's recently reported second quarter and the company had experienced tremendous growth in its target markets.

Digital does more than half its business outside the US, developing and manufacturing products and providing customer services in Europe, Asia and the Pacific Rim.

It employs 500 people in Galway at its European software development facility. Around 600 people are employed in Dublin in its sales and services subsidiary. It is the second largest company in Ireland selling computer systems and in the year to last June had sales of £68 million in the North and the Republic. The Republic accounted for £58 million of sales.

Compaq announced a year ago that it would create up to 600 jobs in Dublin within three years. The IDA-backed £6.25 million investment involved setting up a call centre in Dublin which is the base for its European, Middle East and African customer support centre.

Compaq already had a small sales force in Ireland and in 1995 sold more than £24 million worth of goods here. Its headquarters are in Houston, Texas. It was founded in 1982.

In 1996 it recorded sales of $18 billion. Following the merger, it predicts that it will have revenues of $40 billion by the year 2000.