COMPAQ shareholders will receive 0.6325 shares of newly issued HP shares for each share they own. The deal is valued at $25 billion (€27.54 billion) and the new firm will have revenues in the region of $90 billion.

The combined firm will operate under the Hewlett-Packard name and will be headquartered at HP's base in Palo Alto, California. Compaq's Houston base will become an engineering hub and product development for the new firm.

The combined company will employ over 145,000 people. Some 15,000 people will become redundant over two years as the company pursues cost savings of $2.5 billion by 2004.

Hewlett chief executive, Ms Carly Fiorina, becomes chairman and chief executive, while Compaq chief executive Mr Michael Capellas becomes president of the new entity.

The company will have four operating units: printing and imaging, access devices, infrastructures, and services.

It will become the number one provider of servers, access devices and printing and imaging equipment worldwide, and leapfrog Dell in terms of market capitalisation.

The new operation will also be a major competitor to IBM.