HP to buy 3Com for $3.1bn

Networking equipment market heats up

HP will pay $7.90 per share for 3Com, a 39 per cent premium over its closing price. The deal values 3Com at $2.7bn excluding its net cash.

"Cisco and HP are going to compete more and more," said Jayson Noland, analyst at Robert W Baird & Co. "We're headed to a world where each of these large companies can give you everything you want."

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.

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.

"We wanted to create a powerhouse in the networking industry," said Marius Haas, senior vice president of HP's ProCurve networking division, adding that the 3Com deal puts HP in a good position to compete against Cisco.

When asked for comment, Cisco said: "While Cisco has a healthy respect for all of our competitors, acquisitions in our industry only validate the fact that networking is becoming the platform for all forms of communications and IT."

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

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.

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.

- Reuters

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