Telecommunications-equipment company 3Com Corp. has agreed to be acquired by private-equity firm Bain Capital Partners LLC for about $2.2 billion in cash.
The $5.30 a share offer is a 44% premium to Thursday’s closing price on the Nasdaq Stock Market. Shares of 3Com surged ahead of the announcement as The Wall Street Journal reported a deal was imminent.
As part of the deal, set to close in the first quarter, Chinese networking giant Huawei Technologies Co. will acquire a minority stake in 3Com.
3Com Chief Executive Edgar Masri said, “We believe that this agreement better positions 3Com to establish itself as a global networking leader, which will benefit our employees, our customers and our partners.”
The deal signals that the leveraged-buyout market isn’t totally moribund. But its new vitality might be coming from an interesting place: China.
Canada’s Nortel Networks Corp. was interested in 3Com, people close to the process have said. Nortel may have walked away because Bain secured the partnership of Huawei.
The reason why Huawei was crucial for Bain is that it has a noncompete with 3Com’s crown jewel, a Chinese networking operation called H3C, which itself used to be a joint venture between 3Com and Huawei. If Nortel had won the auction, for example, it would have faced the prospect of competing against Huawei in short order.
In November, 3Com took full control of H3C, paying $882 million for the 49% stake it didn’t own. Among the other bidders for the stake was Bain.
The purchase allowed 3Com to fully tap into the bustling Chinese market demand for network equipment. But some analysts expressed concern at the time that the many risks from integrating two businesses across the Pacific may cloud 3Com’s future. The joint venture was created in 2003 to establish a presence in China, create network equipment that neither company could do alone and tap into the region’s engineering talents.
Mr. Masri said in July that 3Com was set to cut jobs in the second half of the year as the company took advantage of cheaper labor following the H3C deal. At the time, 3Com had some 6,200 employees, with 5,000 in Asia and nearly all of them in China.
The Marlborough, Mass., company has struggled in recent years as Cisco Systems Inc. cemented its dominance in the networking market. 3Com sells mostly Ethernet switches, a hardware device used in computer networks to direct the flow of data. Emerging markets such as China are the new frontier for networking, as for many other businesses.
Even so, it will be hard for 3Com to regain lost ground. Excluding H3C, its market share in so-called stackable Ethernet switches has plummeted to 4% from 11% in 2001. Cisco boasts 70%, said Seamus Crehan, senior director of Ethernet-switch research for Dell’Oro Group.
Earlier this year, Chicago hedge fund Citadel Investment Group acquired a 9.7% stake in 3Com, becoming the firm’s biggest shareholder, and offered to provide “input” in turning the company around.
Most of the rest of the value of 3Com is in its Tipping Point unit, which provides network security gear. 3Com has said it would sell shares of Tipping Point to the public; that plan would probably be scrapped as part of the buyout agreement.
Bain has been an active buyer of big companies over the years. Its purchases have included Toys “R” Us, Michaels Stores, Burger King, Warner Music Group, Burlington Coat Factory, Dunkin’ Brands and Staples. It is also a one-third owner of Home Depot Inc.’s former supply business.
With headquarters in Shenzhen, closely held Huawei is China’s largest telecommunications-equipment maker. Aided by loans from the Chinese government, the company has expanded rapidly around the globe, taking on Western rivals such as Cisco and Alcatel Lucent with its low prices. Most of Huawei’s business comes from outside China.
Fuente: The Wall Street Journal