3Com agrees to $2.2bn private-equity Buyout

3Com Corporation, a leading provider of secure, converged voice and data networking solutions for enterprises of all sizes, announced on Friday that it has agreed to be acquired by Bain Capital Partners LLC for $2.2 billion in cash, turning the year-long speculation of possible sale into reality.

The network equipment maker 3Com and private-equity firm Bain Capital signed yesterday a definitive merger agreement that also gives China's largest networking company, Huawei Technologies, a minority stake in the company.

Once the deal matures, Huawei Technologies, one of China's most ambitious technology firms, would become a commercial and strategic partner of the Marlborough, Massachusetts firm, 3Com.

Bain Capital’s offer price to 3Com (Computers, Communication and Compatibility) shareholders, i.e. $5.30 per share in cash, is pitched at a 44 percent premium to 3Com's closing price of $3.68 on Thursday (Sept.27).

"The 3Com board of birectors 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's chief executive officer. "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."

The merger agreement has been approved unanimously by the Board of Directors of 3Com. The deal is expected to close in the first quarter of 2008.

After the acquisition, Bain Capital would continue to work with 3Com's management team to build the business, said Jonathan Zhu, a Bain Capital Managing Director, based in Hong Kong.

"3Com has a strong competitive position, and we believe there are significant opportunities to grow by acquiring customers and introducing new products. We look forward to working with the management team and the company's strategic partners to seize the worldwide growth opportunity that exists for 3Com's communications networking solutions," Zhu said.

Markets analysts expect the Huawei's investment in 3Com would broaden Chinese company’s distribution network outside China. In addition, the bid could strengthen Huawei's prospects in Asia and might help it compete for corporate customers in the United States and Europe.

Huawei operated a joint venture, now called H3C Technologies Co., Limited (H3C), with 3Com in China, before the US firm took full control of it last year. The Chinese firm and 3com struck a partnership in November 2003 to manufacture Internet protocol-based routers and switches. In November last year, 3Com bought back H3C out of their joint venture for $882 million.

Apparently happy by going private, 3Com said the latest switch would help the company to establish itself as a global networking leader. "As a private company, we will be able to focus on our long-term strategic objectives," Masri said.

3Com, whose business rallied throughout the 1980s and 1990s, like many telecoms equipment-makers, has struggled in the past decade. Speculations were high on the air a year ago that 3Com would be taken private at $7 per share by an unnamed private equity group. 3Com currently employs more than 6,000 workers in more than 40 countries, and has annual revenue of $1.3 billion.

Bain Capital Partners, which currently has about $50 billion in assets under management, holds major stakes in a range of companies including Warner Music Group Corp., Toys "R" Us Inc. and Burger King Holdings Inc. It has invested or bought more than 240 companies since its founding in 1984.

Goldman Sachs is advising the board of 3Com, while privately owned Huawei is being advised by investment bank UBS, which is also jointly advising Bain alongside Citi and leading the merger deal's financing.

Shares of 3Com rallied $1.26 a share, or 34 percent, to close at $4.94 in trading on Friday.