NEW YORK (Reuters) – Three U.S. private-equity firms are competing to buy H-3C, a venture of U.S. network equipment supplier 3Com Corp. and Chinese telecommunications equipment maker Huawei Technologies Co. Ltd, the Wall Street Journal said on Thursday.
The network equipment venture marks its three-year anniversary on November 15, after which both 3Com and Huawei can bid to buy out the other’s stake. 3Com owns 51 percent of the venture and Huawei the remainder.
3Com said in August it would begin negotiations aimed at increasing its share of the venture, which sells network equipment to corporate customers.
Citing people familiar with the deal, the Journal said Huawei invited Silver Lake Partners, Bain Capital Inc. and Texas Pacific Group to bid for the joint venture. The private equity firms’ offers range from $1 billion to $1.5 billion, one of these people said, according to the Journal.
It cited a source saying Huawei would likely stay in the venture and keep a 20 percent to 30 percent stake.
3Com, Silver Lake and Texas Pacific declined comment. Bain and Huawei were not immediately available for comment.
Analysts said the private equity talks may be a negotiating tactic by Huawei to establish multiple opinions on the value of the venture, or to raise the price of an eventual 3Com deal.
“If this situation proves true, I wouldn’t be surprised if it reflects Huawei’s intention to highlight the value of the joint venture so that they can maximize the sale price,” said UBS analyst Long Jiang, who pegged the total value of H-3C at $2.6 billion.
The companies set up H-3C in 2003 to pool their research and development resources.
The venture gives 3Com access to Asian markets, where Huawei has a strong presence, and gives the Chinese company access to U.S. and European markets through 3Com.
Because the venture, which represents more than half of 3Com’s revenue, is of such strategic and financial importance to the U.S. company, Jiang believes a sale of Huawei’s entire stake to private equity is unlikely.
“I believe the most likely scenario is for 3Com to buy out part of Huawei’s 49 percent share,” he said.
Jiang estimates H-3C brought about $170 million of 3Com’s $300 million revenue in its fiscal first quarter.
Given the importance of the venture to 3Com, Kaufman Bros analyst Manuel Recarey believes private equity firms would only end up investing in H-3C be if they also buy 3Com.
“The big question is are these three groups interested in heritage 3Com?” he said, referring to 3Com’s business excluding the venture. “My view is that the heritage 3Com has significant issues it needs to deal with to stabilize revenue and return to profitability.”
Jiang has a $5.60 share price target for 3Com and attributes about 60 percent of this valuation to H-3C. 3Com shares closed 15 cents, or 3 percent, higher at $5.12 on Nasdaq.
Fuente: Reuters, Sinead Carew