In a major challenge to Cisco Systems (CSCO), Palo Alto computer giant Hewlett-Packard (HPQ) has agreed to buy Massachusetts-based networking equipment maker 3Com (COMS) for $2.7 billion, pushing forward H-P’s strategy for combining computing, storage, services and networking under one roof. It’s H-P’s fourth-largest acquisition ever and instantly makes the tech corporation the second-largest networking company in the world after Cisco.
Under the terms of the agreement, which has been approved by both companies’ boards of directors and is expected to close in the first half of 2010, 3Com stockholders will receive $7.90 for each share of 3Com common stock, about $2 per share, or a 44% premium, above the stock’s price of $5.69 at the close of trading on Wednesday. H-P is possibly setting itself up here for one of its fiercest tech battles in years.
“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” said Dave Donatelli, executive VP and general manager, Enterprise Servers and Networking, at H-P, in a prepared statement.
3Com’s acquisition, whose leading holders are Barclay’s, Vanguard, Fidelity and Axa Investment Managers, will significantly expand H-P’s Ethernet switching portfolio and add routing solutions to its lineup. The merger will also strengthen the company’s position in China – one of the world’s fastest-growing markets – where 3Com operates the H3C subsidiary it originally formed as a joint venture with Huawei Technologies.
The timing of the acquisition surprised some in the financial world when the news broke. “This is a significant event and a strong indication that H-P and Cisco are increasingly overlapping with each other,” Signal Hill analyst Erik Suppiger told CNBC. “This is going to change the competitive market for the tech landscape in general.”
Goldman Sachs (GS) advised 3Com on the transaction, while Morgan Stanley (MS) helped Hewlett-Packard.