Bain to buy 3Com

By Sinead Carew

NEW YORK (Reuters) - Network equipment maker 3Com Corp (COMS.O) said on Friday it will be bought by private equity firm Bain Capital Partners for $2.2 billion in a deal that will also give China's Huawei HWT.UL a minority stake.

While 3Com would not say how much Huawei Technologies Co Ltd was investing, the move was seen as an effort by China's biggest telecoms gear maker to expand outside its home turf to take on global market leader Cisco Systems Inc (CSCO.O).

"Huawei probably has the most to gain from this transaction and now has an entry into the U.S. market," RBC analyst Mark Sue wrote in a note to clients.

Under the terms of the agreement, 3Com shareholders will get $5.30 per share, a 44 percent premium over the stock's Thursday closing price of $3.68 on Nasdaq.

3Com said affiliates of Huawei would acquire a minority interest in the company as part of the deal and become a commercial and strategic partner.

The agreement comes six months after Huawei sold 3Com its 49 percent share of their joint venture, H3C, which was set up in 2003 to pool research and development. The partnership gave 3Com access to Asian markets and gave Huawei an entree into U.S. and European markets.

Huawei had said it exited the venture to focus on its core business of selling gear to telecoms service providers.

Kaufman Bros analyst Manuel Recarey said Huawei's investment in 3Com would give the Chinese company a product distribution network outside China and might help it compete for corporate customers in the United States and Europe.

Huawei's "ultimate goal is to turn themselves into a Cisco, and to do that you need products to sell to enterprise," he said, noting Huawei's focus on service provider customers.

He said the Bain deal was a fair price for 3Com, which has struggled to compete against Cisco and other rivals. He said H3C likely represented the majority of the valuation, with the remainder going for 3Com's security unit, TippingPoint.

Recarey estimated about half of 3Com's revenue comes from China, less than 20 percent from North America, about 20 percent from Europe, Middle East and Africa, and about 5 percent from Latin America.

3Com shares were up $1.28 to $4.96 in midday trade on Nasdaq.

GOING PRIVATE

3Com, based in Marlborough, Massachusetts, said going private would give it more flexibility, and adding Huawei as a shareholder and partner would help boost its business in China.

Huawei resells H3C equipment in China. This represents more than 30 percent of H3C's revenue, executives on a conference call said.