3Com buys out Huawei joint venture for $882 million

Deal gives 3Com control of large-enterprise equipment venture — ammunition to battle Cisco, Nortel.

3Com said Tuesday it is buying full ownership of its joint venture with vendor Huawei for $882 million.

The deal ends a bidding war between Huawei and 3Com, as well as outside private equity firms, to buy the Huawei 3Com joint venture, known as H-3C. 3Com, which already owned 51% of H-3C, will gain control of the high-end LAN switch and router products produced by H-3C, which 3Com had used to reestablish itself in the U.S. enterprise network market over the last several years.

The deal is the first major move by new CEO Edgar Masri, who took over 3Com in August. H3C was formed in 2003 under former CEO Bruce Claflin (who announced his retirement in January). For 3Com, the joint venture was an attempt reenter the market for large LAN switches and WAN routers, after 3Com ducked out of these markets in 2000 — the last year the company was profitable. Huawei's goal of gaining a larger presence in the North America corporate and carrier markets never really materialized. As part of the deal, China-based Huawei is prohibited form competing in 3Com's market for 18 months.

Reports say that 3Com's $882 million bid for H3C, which industry analyst value at $1.8 billion, beat offers from private equity firms Bain Capital, Silver Lake Partners and Texas Pacific Group, as well as Huawei itself.

3Com did not specify how it would pay for the 48% of H3C. As of September, the company had $916 million in cash, $197 of which was from the Huawei joint venture. 3Com has seen an uptick in sales recently, as it posted $300 million in revenue for its first fiscal quarter of 2007 (which ended Sept. 1). This was up from $255 million in the previous quarter, and almost a 70% increase from the $177 million 3Com made in its 2006 first fiscal quarter. 3Com also cut its loses by half to $20 million, compared with a year ago.

Products produced by H3C included the 3Com Switch 7700 and 8800 series Gigabit and 10G Ethernet switches, which compete with products such as Cisco's Catalyst 6500, Nortel's Ethernet Routing Switch 8600 and HP ProCurve's 9300 series. WAN routers/firewall gear built under the H3C venture included 3Com's Router 3000, 5000 and 6000 series, which compete with Cisco's ISR and Juniper's J-Series product lines, among others.

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