HP Buys 3Com for $2.7 billion

By Christopher Saunders

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Computer services and hardware giant HP just got bigger. The company announced today it plans to buy networking player 3Com in a $2.7B deal that aims to turn HP into a forced to be reckoned with in networking. HP will pay $7.90 per share of 3COM. A premium above today's close of $5.69. The purchase is expected to close in the first half of 2010.

The move looks to buttress HP's own expansive role in the enterprise data center with 3Com's networking switching, routing and TippingPoint network security solutions. In a statement, HP said the merged company would be able to deliver an offering stretching from the edge to the core of the enterprise network while simplifying management.

As HP sees it, such an offering is needed in a field overshadowed by one player: Cisco. "Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor," Dave Donatelli, executive vice president and general manager for HP's enterprise servers and networking unit, said in a statement. "By acquiring 3Com, we are ... bringing disruptive change to the networking industry."

Cisco, as it turns out, has been making its own effort to broaden its hold on the data center. The company in March launched its Unified Computing System line of products, aimed more squarely at the enterprise storage and server markets; areas where HP has traditionally loomed large.

The deal comes on the heals of a failed $2.2B buyout by Bain Capital last year. Bain withdrew its offer after U.S. lawmakers raised national security concerns about the transaction. Now, 3Com sees itself being able to help HP by providing expertise in simple-to-manage, low-cost and high-performance networking solutions.

"3Com's networking products are based on a modern architecture which has been designed to offer better performance, require less power and eliminate administrative complexity when compared against current network offerings," 3Com CEO Bob Mao, said in a statement.

In particular, grabbing 3Com will give HP a boost in delivering Ethernet switching offerings. It will also give the company a leg up in China, where 3Com operates through its H3C unit. China is a key area of focus for the networking vendor; generating a hefty portion of its revenue.

Once the merger's complete, HP said it would also be putting its combined offerings to the test.

"We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centers, entirely on the new HP networking solutions," HP CIO Randy Mott said in a statement. "Based on our experience and extensive testing of 3Com's products, we are planning to undertake a global rollout within HP as soon as possible after the completion of the acquisition."

As of press time, shares of HP were down $0.24 percent on the news, trading after hours at $49.88‎. Meanwhile, shares of 3Com soared more than 35% to $7.70 in after hours trade.