Bain and Huawei to buy 3Com for $ 2.2 billion

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New York, Sep 29: Network equipment maker 3Com Corp said on Friday it will be bought by private equity firm Bain Capital Partners for $2.2 billion in a deal that will also give China's Huawei Technologies Co Ltd a minority stake.

Under the terms of the agreement, 3Com shareholders would get $5.30 per share, a 44 percent premium over the stock's Thursday closing price of $3.68 on Nasdaq, the companies said.

3Com shares rose $1.28 or 34.8 percent to $4.96 on Friday.

The companies did not reveal the size of Huawei's stake.

Huawei's investment, pegged at less than 20 percent by one source familiar with the matter, was seen as an effort by China's biggest telecommunications gear maker to go beyond its home turf to take on market leader Cisco Systems Inc.

''Huawei probably has the most to gain from this transaction and now has an entry into the U.S. market,'' RBC analyst Mark Sue wrote in a note to clients.

3Com, which had $336 million in debt at the end of August, said Huawei would become a commercial and strategic partner.

The agreement comes six months after Huawei sold 3Com its 49 percent share of their joint venture, H3C, which was set up in 2003 to pool research and development.

The venture gave 3Com access to Asian markets and gave Huawei an entree into U.S. and European markets. Huawei had said it sold out to focus on its core business of selling equipment to telecommunications service providers.

Kaufman Bros analyst Manuel Recarey said Huawei's investment in 3Com would give the Chinese company a product distribution network outside China and might help it compete for corporate customers in the United States and Europe.

Huawei's ''ultimate goal is to turn themselves into a Cisco, and to do that you need products to sell to enterprise,'' he said, noting Huawei's focus on service provider customers.

He said the Bain deal was a fair price for 3Com, which has struggled to compete against Cisco and other rivals. He said H3C likely represented the majority of the valuation, with the remainder going for 3Com's security unit, TippingPoint.

Recarey estimated about half of 3Com's revenue comes from China, less than 20 percent from North America, about 20 percent from Europe, Middle East and Africa, and about 5 percent from Latin America.

3Com, of Marlborough, Massachusetts, said going private would give it more flexibility, and adding Huawei as a shareholder and partner would help boost business in China.

Huawei resells H3C gear, representing more than 30 percent of H3C's revenue, executives on a conference call said.

3Com, which sells to small and medium-sized businesses, has been hurt by Cisco's recent focus on this market, according to analysts. 3Com posted a wider quarterly loss this month.

''Its business has been struggling quite a bit,'' said Recarey. ''They were starting to make positive steps, but it wasn't anything you could say was a clear sign of a turnaround.'' RBC's Sue said he had reservations about whether going private would solve 3Com's problems. It ''may be viewed mostly as a relief (rather) than any potential long-term turnaround,'' he said.

Bain, one of world's largest private equity firms, is likely putting more cash into the deal than usual for a private equity deal as the credit crunch has severely limited bank lending for deals, according to the source.

3Com said its board had unanimously approved the deal and would recommend it to shareholders. It expects the transaction to close in the first quarter.


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