* Deal for $7.90 per share or 39 pct premium
* HP eyes expansion in China, network gear market
* Deal expected to close in first half 2010
* 3Com shares up 35 pct, HP shares edge lower
(Adds comments from analysts and executives)
By Ritsuko Ando and Gabriel Madway
NEW YORK/SAN FRANCISCO, Nov 11 Hewlett-Packard
Co (HPQ.N) is making a move into the telecom equipment market
by striking a $3.1 billion deal for 3Com Corp COMS.O, in a
major challenge to Cisco Systems Inc (CSCO.O).
The deal is the latest sign that technology giants from IBM
(IBM.N) to Oracle Corp ORCL.O are increasingly encroaching in
each other's markets as they seek to become one-stop shops for
computing, networking and storage equipment. Cisco itself this
year pushed into the computer server market, of which HP is a
HP, which also reported higher-than-expected preliminary
earnings on Wednesday, said it would pay $7.90 per share for
3Com, a 39 percent premium over its closing price. The deal
values 3Com at $2.7 billion 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 head to head with
Cisco in 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, analysts said.
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.
Marius Haas, senior vice president of HP's ProCurve
division, said the 3Com deal puts HP in a good position to
compete against Cisco.
"We wanted to create a powerhouse in the networking
industry," he said, adding that HP looked for the last six
months at "all the technologies" in the market before settling
3Com has been an acquisition target before. In 2008, Bain
Capital Partners and China's Huawei Technologies [HWT.UL] tried
to buy 3Com for $2.2 billion but failed to win approval from a
U.S. government security panel. Huawei is a privately held
company set up by a former Chinese army officer.
3Com shares jumped 35 percent to $7.66 in after-hours
trading. They climbed over 5 percent on Wednesday ahead of the
announcement. HP shares edged 0.4 percent lower to $49.80.
TECH DEALS GALORE
Cisco has been one of the biggest shoppers in the tech
industry over the past month, announcing plans to buy
videoconferencing company Tandberg TAA.OL, as well as
wireless equipment maker Starent Networks Corp STAR.O -- both
deals worth around $3 billion.
HP's move also comes after news earlier in the day that
Motorola Inc MOT.N is looking for a buyer for its unit that
sells network equipment to telephone companies.
Edward Hemmelgarn, president and chief investment officer
at Shaker Investments, said the recent string of deals
reflected an improving economy.
"Markets have stabilized and companies have more
confidence. Large companies see this as a chance to fill in
their portfolios," he said.
Goldman Sachs advised 3Com while Morgan Stanley advised HP,
which has made more than 45 acquisitions since 2001. Thirty of
the deals took place since Chief Executive Mark Hurd arrived in
HP had been rumored to be looking at Brocade Communications
Systems Inc (BRCD.O), a smaller rival to Cisco. Brocade shares
fell over 4 percent after the 3Com deal was announced.
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.
"This demonstrates that HP is very serious about the
networking space. The fact that they are willing to put nearly
$3 billon where their mouth is suggests that this is not a
fly-by-night strategy," said Charles King, an analyst at
HP also reported preliminary fiscal fourth quarter profit
per share of 99 cents, up from 84 cents a year ago, and raised
its outlook for fiscal 2010. [ID:nN11412962]
(Reporting by Sinead Carew, Ritsuko Ando and Gabriel Madway;
Editing by Carol Bishopric, Bernard Orr, Tiffany Wu)