Tech Strangeworld: 3Com Bought by H-P (COMS, HPQ, CSCO, IBM)

Sometimes the unimaginable happens, and that is today.  3Com Corporation (NASDAQ: COMS) is being acquired, and in a deal that won’t run regulatory risk at least over China having access to core technology.  Hewlett-Packard (NYSE: HPQ) is the surprise buyer.

H-P is buying the networking and routing company for a price of $7.90 per share in cash, which comes to an enterprise value of about $2.7 billion.   The deal has also been approved by the boards of directors at each company.  Based upon Cisco Systems Inc. (NASDAQ: CSCO) expanding its reach further out into data centers and beyond and based on some recent moves from IBM (NYSE: IBM), this is actually a lower surprise than had this been announced a year ago.  That would make one wonder what moves those companies will make.

HP noted that this will widely expand its Ethernet switching offerings, add routing solutions and strengthen its place in China with the H3C (Huawei venture) offerings.

The deal is expected to close in the first half of calendar 2010 and is subject to regulatory and shareholder approvals.  HP noted that 3Com will be slightly dilutive to fiscal 2010 non-GAAP earnings.  H-P also issued guidance ahead of its upcoming earnings:

  • Q1-2010 revenue will be about $29.6 to $29.9 billion, GAAP diluted earnings of $0.90 to $0.92 EPS and non-GAAP earnings of $1.03 to $1.05 EPS (non-GAAP excludes after-tax costs of about $0.13 per share intangible amortization, restructuring charges, and acquisition charges).For Fiscal-2010 revenue will be about $118 to $119 billion, above a prior range of of $117 to $118.0 billion; GAAP earnings in a range of $3.65 to $3.75 EPS (above prior $3.60 to $3.70 EPS range) and non-GAAP earnings of $4.25 to $4.35 EPS (above prior $4.20 to $4.30 EPS range).

Finally, 3Com has a real future.  3Com holders now just have to hope to hope the European Commission isn’t hellbent on blocking another merger to keep a company from being able to be as profitable as it could be.

Some deals get leaked and some do not, but 3Com was up 5.2% at $5.69 today on 6.7 million shares versus an average volume of 5.4 million shares.  3Com traded 3,961 of the NOV-2009 CALLS today versus an open interest of 964 contracts. In the December-2009 $5.00 CALLS we saw 3,269 contracts trade versus an open interest of 210 contracts.