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3Com falls to private equity and Chinese takeover

Bain Capital and Huawei Technologies team up to buy the mid-market network equipment maker, at a bargain price of $2.2 billion.

3Com, the enterprise and small business network hardware maker has accepted a $2.2 billion (1.1 billion) takeover deal from private equity house Bain Capital and China's Huawei Technologies. The takeover comes after 3Com announced net losses of $18.7 million for the fiscal second quarter ending 30 August.

Bain Capital, a private asset management firm worth over $50 billion (25 billion), will purchase 80 per cent of 3Com's shares. Huawei, a Chinese networking and telecoms equipment maker and former partner of 3Com, will purchase 16.5 per cent of the remaining shares.

The deal was struck even after 3Com announced net losses for the second consecutive fiscal quarter. "Net loss in the quarter was $18.7 million, or $0.05 per diluted share, compared with a net loss of $14.1 million, or $0.04 per diluted share, in the first quarter of fiscal year 2007." The deal was accepted for $5.30 per share, a significant premium on the closing price of $3.68.

It has been increasingly difficult for 3Com to compete in a market dominated by networking giants like Cisco. Their relative sales share in the market has been decreasing since 2000, and independent market researchers have repeatedly ranked them at the bottom of the industry. In 2006, Dell'Oro group placed 3Com fifth out of five in an industry revenue share ranking behind Cisco, HP ProCurve, Nortel, and Foundry.

3Com declined to comment further at the time of writing on how the deal would affect users and future product plans.

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