3Com to own 100% of Huawei 3Com

3Com spends $882 million to increase its stake in its China joint venture from 51% to 100%.
3Com Corporation has acquired the 49% of its China joint venture Huawei 3Com that was owned by partner Huawei Technologies. The stake cost 3Com $882 million and takes its ownership to 100%. The agreed price represents an implied equity value for Huawei 3Com of $1.8 billion.

As per the shareholders' agreement between the partners, 3Com initiated a bid process on November 15. Private equity firms TPG, Silver Lake Partners and Bain Capital were also invited to submit bids. Huawei accepted 3ComÆs bid on November 28.

Edgar Masri, president and CEO of 3Com says: ôHuawei 3Com has proven to be a well-established, stand-alone business with substantial market share in China and strong potential to expand globally, and we are very excited at the prospect of owning 100% of the venture. Huawei 3Com is a strategic asset and we believe that 3Com is well positioned to help it expand its global presence. We believe 3Com, with Huawei 3Com, can build a powerful, global technology leader. We look forward to continuing our relationship with Huawei as a key customer."

Guo Ping, senior vice president of Huawei Technologies says: "The divestment will further enable Huawei to focus its efforts on its core business and create long-term value and potential growth for our clients.ö

Huawei 3Com was created in November 2003 as a 49:51 joint venture between 3Com and Huawei to provide a range of networking products and solutions. The company has its headquarters in Hong Kong and research and development centres in Beijing, Hangzhou, Shenzhen and Bangalore. In January this year, 3Com exercised an option to increase its stake to 51%, paying $28 million for a controlling interest.

Analysts have commented that, for 3Com, the China joint venture has been the jewel in the crown. 3Com had lost ground in its traditional markets to rival Cisco and its revenues were stagnating. The China joint venture changed this with sequential quarters of double digit growth. Analysts estimate it has a 20% share of the networking market in China. Further, it provides 3Com with an opportunity for significant cost savings as costs in China are lower than in the US. In 2006, 3Com has been able to consolidate the numbers because it now owns 51% of the business.

Under the shareholders' agreement, the parties are bound by non-compete provisions for 18 months after the closing. 3Com did not disclose details of financing for the acquisition. The deal is subject to customary PRC approvals.

For the quarter ended August 31, Huawei 3Com registered revenues of $170 million on which it earned a net profit of $18.2 million.

3Com was advised by Goldman Sachs.
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