Analysts and regulatory authorities are responding to HP's surprise announcement of plans to acquire Compaq.

The $25 billion merger gives the combined company 70 per cent of the non-direct PC sales in the US. Despite this, some analysts are critical of the deal, describing the companies as "mismatched", reports claim.

"I don't think that this is great news," said Roger Kay, an analyst with International Data Corp. (IDC). "Companies are being driven into each other's arms by a bad industry outlook," he asserted.

Brian Gammage, principal analyst at Dataquest said: "This is a defensive move by two struggling management teams who are looking to find a position in the computer industry. Gammage said he believes the merger to be a result of Dell's PC price war.

Tony Iams, an analyst at technology researcher DH Brown and Associates believes that HP will benefit from Compaq's wide experience with the Intel platform and other technologies. "HP wants to be on Intel and Compaq will help them get there in a big way," he said.

Competitors won't sit on the sidelines, however. IDC Australia analyst Graham Penns said: "IBM's got 18 months to prepare; it won't sit and watch."

Gartner research analyst Mark Margevicius believes that HP's purchase could herald more consolidation in the PC marketplace.

Logistically, the merged companies expect to save $2.5 billion annually through operational synergies. As well as the 15,000 job cuts announced yesterday, both companies independently announced an additional 15,000 redundancies before the merger was announced.

It may not be a slick business, warns Dana Gardner, senior analyst at Aberdeen Group in Boston: "You have two distinct companies with two distinct cultures at work. When Compaq assimilated Digital Equipment Corp in 1998, it didn't work out so great for a long, long time."

The merger will require regulatory approval. Company lawyers have been looking at the ramifications of this, and HP CEO Carly Fiorina plans to meet with the European Union Commissioner for Competition, Mario Monti, within the next few weeks.

"We have thought very carefully about how we can insure that this merger is pro-competitive," she said. The EU confirmed that the merger is substantial enough to require approval from the Commission yesterday.