[UPDATED] It looks like that Huawei Technologies, China's fast-growing networking equipment vendor, will finally end up owning 3Com of the US after all.
After their JV came to an end last November, EngagingChina predicted that 3Com “would probably have little choice but to go private or accept a trade sale.” As it turns out, it has done both.
3Com said today that it had agreed to sell itself for $2.2bn to US private equity firm Bain Capital Partners and Huawei. The all-cash offer represents a premium of 44% over 3Com's closing price yesterday.
Under the deal, Bain would own a majority stake and a minority interest — 16.5% according to media reports — would be sold to Huawei affilates. The tie-up between a US PE firm and Chinese hi-tech manufacturer is certainly unusual and it will be interesting to see how it pans out.
Presumably, Huawei feels that having a US private equity firm in the driving seat of 3Com is not only less risky but also more politically acceptable than snapping up the whole of 3Com itself.
[UPDATE] According to the Financial Times, the companies have declined to disclose whether Huawei would obtain seats on the board or whether it would have unfiltered access to 3Com's technology, which includes advanced cyber-security software that it sells to US defence agencies
The two manufacturers' former venture, H3C, was set up in 2003 to sell enterprise networking gear, mostly in the Chinese market. It grew to account for half of 3Com's sales, before 3Com, in a surprising move, wrested control back.
The move allowed 3Com to boast it was present in the fast-growing Chinese market, but paradoxically, it left 3Com in a much weak position in its core markets of the west.
It seems like 3Com's board has belatedly realised that. CEO Edgar Masri said in a conference call that 3Com reviewed a number of “strategic alternatives” before settling on a sale to Bain and Huawei. The deal is expected to close in early 2008.
More on Huawei and 3Com in these stories.