3Com Sold to Investment Fund for $2.2 Billion

The long-rumoured private equity buyout of 3Com Corp. came to fruition last Friday, as Bain Capital and Chinese networking company Huawei Technologies acquired the communications networking company for $2.2 billion in cash.

Under the terms of the agreement, shareholders will receive $5.30 in cash for each share of 3Com common stock they hold. This represents a premium of approximately 44 percent over 3Com’s closing price of $3.68 on September 27, 2007.

The Board of Directors of 3Com has unanimously approved the merger agreement and has resolved to recommend that 3Com’s shareholders adopt the agreement.

“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 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.”

“As business becomes ever more global, companies need to enhance their technology infrastructure to compete more effectively in the broader economy,” 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.”

As part of the transaction, affiliates of Huawei Technologies will acquire a minority interest in the company and become a commercial and strategic partner of 3Com.

The transaction is expected to be completed by the first quarter of calendar year 2008, subject to receipt of 3Com shareholder approval, customary regulatory approvals and other customary closing conditions.

Left unresolved is the future of one of 3Com’s stronger businesses – Tipping Point, a maker of network security appliances, which has experienced solid growth. Before the Bain deal, 3Com had said it would issue Tipping Point shares to the public.

3Com isn’t the only Cisco rival hoping to get bigger by going private. Avaya Inc. last Friday revealed the completion of its own $8.2 billion buyout, first made public in June. Two private equity companies, TPG Capital and Silver Lake, agreed to pay $17.50 a share for Avaya, which makes Internet Protocol-based phone systems for businesses.