HP's deal for 3Com: A missile launch at Cisco?

Posted Nov 12th 2009 8:30AM by Tom Taulli
Filed under: Deals, Cisco Systems (CSCO), Hewlett-Packard (HPQ)

When Robert Metcalfe invented Ethernet, he knew it would be an explosive business. So, he co-founded 3Com (COMS) back in 1979. It would become a pioneering company.

But now 3Com will no longer be independent. That is, the company is selling out to Hewlett-Packard (NYSE: HPQ) for $2.7 billion in cash or $7.90 per share.

The deal is definitely a bold move. But HP needs to be aggressive with M&A to continue its growth.

Actually, HP already has a networking business, called ProCurve. However, it has needed tooling. So, the 3Com deal will add bulk to the product offerings. The company brings best-of-breed technologies in areas spanning core switching, routing and security. 3Com also has a strong R&D capability in China, as well as a global distribution network.

Something else: 3Com has a hefty 30%+ market share in the Chinese market. In light of the continued strong economic growth in the country, this should be a nice boost for HP.

True, networking is extremely competitive, especially with the mighty Cisco (CSCO). But the fact remains that information technology clients want integrated solutions, which tend to lower costs and maintenance.

Thus, with the 3Com deal, HP will be able to bolster its data center business and get a bigger piece of the global $40 billion market opportunity. And, HP will now provide a viable alternative to Cisco, which is definitely something that will shake-up the networking industry.

Tom Taulli is the author of various books, including The Complete M&A Handbook.

Tags: 3Com, featured