3com
HP said Wednesday it has agreed to pay $7.90 per share for 3Com, a 39 percent premium to 3Coms closing stock price before the deal was announced. 3Com makes things like routers and switches that direct Internet and other data traffic.
HP also raised its 2010 guidance and reported preliminary quarterly earnings that topped Wall Streets forecasts. The company didnt provide specific reasons for its better outlook, other than a statement from CEO Mark Hurd that “significant growth in China” and “solid execution” helped HP in the quarter.
The 3Com acquisition represents the latest attempt by HP, the worlds No. 1 maker of personal computers, to expand into more profitable areas than PCs. HPs PC division made up nearly a third of the companys total revenue in the last nine months, but only 17 percent of its operating income.
One of the areas HP is eyeing is computer networking, a market dominated by Cisco.
“Every customer I speak to has asked us to do more networking,” said David Donatelli, executive vice president of HPs enterprise servers and networking group.
HP has been trying to muscle into Ciscos turf with its ProCurve line of networking gear, which has been growing but is still a very small part of HPs business. Adding 3Com beefs up HPs networking offerings and gives it a bigger presence in China. More than half of 3Coms $1.3 billion in annual revenue comes from China.
The deal also means HP will be squaring off in more areas against Cisco, which has decided to compete against longtime partners like HP and IBM Corp. with a push into computer servers.
The moves show how the biggest companies that provide corporate computing infrastructure are consolidating quickly as they try to become one-stop technology shops.
The 3Com acquisition comes as HP is still digesting its $13.9 billion takeover of Electronic Data Systems Corp., a company whose addition made HPs technology services group the companys biggest revenue and profit generator. That deal was a shot at IBM and a sign HP wanted a bigger piece of the services business, which has been key to IBMs turnaround from the brink of collapse in the 1990s.
HP, which is cutting 24,600 jobs as part of the EDS acquisition, didnt address whether there would be layoffs at 3Com, which has 5,800 employees worldwide.
HPs stock slipped 32 cents to $49.68 while 3Coms shares leaped $2, or 35.2 percent, to $7.69 in extended trading after the announcements.
Co-founded by Robert Metcalfe, one of the inventors of the widely used Ethernet networking standard, 3Com is a former high-flyer whose business soared through the 1980s and 1990s but staggered after the dot-com meltdown. The companys shares briefly topped $100 in 2000, but in recent years have languished below $5.
That deal fell apart last year over national security concerns. Lawmakers said they were worried sensitive military technology could be transferred to China. One sticking point appeared to be 3Coms Tipping Point subsidiary, which makes network-security software.
The dynamic of consolidation is playing out across the technology world.
One example is database leader Oracle Corp.s proposed $7.4 billion acquisition of Sun Microsystems Inc., the worlds No. 4 server maker behind IBM, HP and Dell Inc. That deal has been approved in the U.S. but is being held up over antitrust concerns in Europe.
Others include Dell Inc.s recent $3.9 billion takeover of Perot Systems Corp., and Xerox Corp.s $6.4 billion takeover of Affiliated Computer Services Inc.
HPs preliminary report for the three months that ended in October showed the company, based in Palo Alto, Calif., earned 99 cents per share, compared with 84 cents in the year-ago period.