Huawei, investment fund buy 3Com for US$2.2B

Network equipment vendor 3Com Corp. has agreed to be acquired by associates of Bain Capital LLC and of Huawei Technology Co. Ltd. in a deal worth US$2.2 billion, 3Com said late last month.

Huawei affiliate Shenzhen Huawei Investment & Holding Co. Ltd. will take an unspecified minority stake in the company, and will be a commercial and strategic partner of the company, 3Com said.

The agreement has received the unanimous approval of 3Com's board of directors, which is recommending shareholder approval.

“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 Edgar Masri, 3Com president and CEO, in a statement. “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.”

3Com and Huawei are former joint venture partners. In 2003 they set up Huawei-3Com Ltd., an enterprise networking equipment company with headquarters in Hong Kong and factories in China. Last November, 3Com ended the alliance by paying US$882 million for Huawei's 49 per cent stake in the venture, now called H3C Technologies Co. Ltd.

As part of that sale, Huawei agreed not to compete with 3Com in certain markets, and remains one of the company's largest customers: around 30 per cent of H3C's business comes from Huawei, company officials said Friday.

It's not the first time this year that investment funds have taken a major networking company private: enterprise telecommunications equipment vendor Avaya Inc. was bought by Silver Lake Partners and the Texas Pacific Group for US$8.2 billion.

Reports that 3Com was for sale have been circulating since earlier this year. Back in July, networking rival Nortel Networks Corp. was said to have shown an interest.

The US$2.2 billion price tag represents a 44 per cent premium over the share price at the time, 3Com said. Bain hopes to close the deal by the first quarter of next year, subject to shareholder and regulatory approval.

3Com reported financial results for the quarter to Aug. 31 two weeks ago. Sales for the quarter totaled US$319 million, up six per cent on a year earlier, but the company's net loss widened, to US18.7 million from US$14.1 million a year prior.

By: Peter Sayer