3Com agrees to $2.2bn takeover deal

Private equity group Bain to acquire 3Com in a deal which gives a minority stake to the vendor's former JV partner Huawei.

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By  Michele Howe Published  September 30, 2007

Network equipment maker 3Com has announced it has agreed to be acquired by private investment firm Bain Capital Partners for approximately $2.2 billion in cash.

Under terms of the deal, 3Com's former joint venture partner Huawei will also hold a minority stake in the company and become a commercial and strategic partner of 3Com.

The takeover offer values 3Com at $5.30 per share, representing a premium of approximately 44% over the manufacturer's closing price on September 27.

The price was considered relatively high given that 3Com, which competes with Cisco on the networking infrastructure market, has struggled in recent years.

Shares in the company rose 34% to $4.94 on the news.

"The 3Com board of directors and senior management team have thoroughly reviewed our strategic alternatives and have determined that the agreement with Bain Capital provides the best value for 3Com shareholders," said 3Com president and CEO Edgar Masri in a statement.

For Bain, the purchase of 3Com gives it an opportunity to exploit the growth in demand for networking equipment in China through 3Com's Chinese business, Huawei-3Com.

3Com established Huawei-3Com, also known as H3C, through a joint venture with China's leading telecom equipment maker in 2003.

It bought out Huawei's stake in the joint venture at the end of last year.

"3Com has a strong competitive position, and we believe there are significant opportunities to grow by acquiring customers and introducing new products," said Jonathan Zhu, a Bain Capital managing director.

Massachusetts, US-headquartered 3Com has more than 6,000 employees, including approximately 20 in the Middle East, and annual revenues of $1.3 billion.

The Middle East is a relatively small contributor to the company's revenues with the bulk of revenue coming from the firm's Chinese unit Huawei-3Com, which accounted for roughly half the firm's turnover last year.

The takeover, which is expected to be complete by the first quarter of 2008, continues the trend of private equity firms buying into the technology sector.

Earlier this year, telephone equipment maker Avaya was sold to private equity firms TPG and Silver Lake for $8.2 billion, the largest leveraged buyout of a computer networking company.

Bain's other technology investments include integrated software provider SunGard Data Systems, sensor supplier Sensata Technologies, and insurance software provider Applied Systems.

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