Networking company 3Com announced Friday that it will be acquired by private equity company Bain Capital and former joint-venture partner Huawei Technologies in a $2.2 billion cash deal. The transaction, will give China's Huawei a minority stake in the Marlborough, Mass.-based company.
Under the terms of the agreement announced Friday, private-equity firm Bain Capital will take a stake of more than 80% in 3Com, based in Marlborough, Mass., and founded in 1979. Huawei Technologies Co. of China is purchasing the rest, say people familiar with the matter. The deal was struck at $5.30 a share, a 44% premium to 3Com's closing price Thursday, yet far from the heights where its stock traded during the 1990s.
According to WSJ, the 3Com deal reflects a burgeoning trend for Chinese companies: engaging in overseas mergers and acquisitions by purchasing strategic stakes instead of complete corporate control. By leaving majority control to others, the Chinese companies hope they can help mitigate political concerns that have sunk big Chinese takeover attempts before, most notably Cnooc Ltd.'s failed bid in 2005 for Unocal Corp.
Such political concerns are especially significant in the telecom industry, given the advanced technology involved. And the 3Com transaction is expected to get a thorough vetting in Washington, where federal officials are wary of foreign access to U.S. telecom and networking infrastructure.
Huawei has grown quickly since it was founded in 1988 by Ren Zhengfei, a former Chinese army officer and the company's current chief executive. The closely held company, which doesn't publicly report complete financial data, now claims some 62,000 employees and says its sales rose 45% last year to 65.6 billion yuan ($8.73 billion) from 45.3 billion yuan in 2005.
Sramana has an analysis on the same deal according to a comment left.