HP to buy 3com for €3.1bn

 

Hewlett-Packard (HP) is making a move into the network equipment market by striking a $3.1 billion deal for 3Com in a major challenge to Cisco Systems.

The deal is the latest sign that technology giants from IBM to Oracle are increasingly encroaching in each other's markets as they seek to become one-stop shops for computing, networking and data storage. Cisco itself this year pushed into the server market, of which HP is a major player.

HP, which also reported higher-than-expected preliminary earnings yesterday, said it would pay $7.90 per share for 3Com, a 39 per cent premium over its closing price. The deal values 3Com at $2.7 billion excluding its net cash.

By buying 3Com, HP will be competing with Cisco on a wider range of network equipment, including routers and switches. 3Com also has a large presence in China and can help HP expand sales into one of the world's fastest-growing markets.

HP is already a dominant force in personal computers, IT services, servers and printers, with recurring revenue streams that have helped it during the economic downturn.

The company employs over 4,000 people in Leixlip, Dublin, Galway and Belfast

3Com, for its part, has been pushing into the large enterprise market outside China with its H3C brand, trying to take on giants like Cisco.

3Com has been an acquisition target before. In 2008, Bain Capital Partners and China's Huawei Technologies tried to buy the company for $2.2 billion but failed to win approval from a US government security panel.

3Com shares jumped 35 perc ent to $7.66 in after-hours trading. They climbed over 5 per cent yesterday ahead of the announcement. HP shares edged 0.8 per cent lower to $49.61.

A rise in 3Com shares and call options before the offer was announced sparked talk that the news had been leaked, option traders and analysts said.

3Com would be HP's fourth biggest acquisition ever. The Marlborough, Massachusetts-based 3Com has 5,800 employees and posted fiscal 2009 revenue of $1.3 billion, more than half of which came from China.

Worldwide tech mergers and acquisitions have totaled $109.1 billion this year, down 20 per cent from year-to-date 2008, according to Thomson Reuters data.

Cisco has been one of the biggest shoppers in tech over the past month, announcing plans to buy videoconferencing company Tandberg, as well as wireless equipment maker Starent Networks -- both deals worth around $3 billion.

Goldman Sachs advised 3Com while Morgan Stanley advised HP, which has made more than 45 acquisitions since 2001.

HP had been rumoured to be looking at Brocade Communications Systems, a smaller rival to Cisco. Brocade shares fell over 4 per cent after the 3Com deal was announced.

Dave Donatelli, general manager of enterprise servers and networking at HP, said the company scoured the networking industry for potential targets before settling on 3Com.

"I think very clearly here we bought this to grow, and there's no two ways about that," he said on a conference call.

HP, which has bought 30 companies since chief executive Mark Hurd arrived in 2005, had $13.6 billion in cash, equivalents and short-term investments as of July 31.

The terms of the 3Com deal were approved by the boards of both companies, but needs shareholder approval. The deal is expected to close in the first half of 2010.

HP also reported preliminary fiscal fourth quarter profit per share of 99 cents, up from 84 cents a year ago, and raised its outlook for fiscal 2010.

Reuters