Hewlett-Packard to buy 3Com in $2.7 billion deal

Hewlett-Packard is to buy network equipment firm 3Com in a deal that will be worth close to $3 billion.

The company is set to pay a 39 per cent premium to acquire 3Com, offering it $7.90 per share.

That values the company at $2.7 billion excluding its net cash levels and will help establish Hewlett-Packard's position in China, where 3Com has a large presence in the fast-growing technology market.

The move by Hewlett-Packard will intensify its rivalry with Cisco Systems, which is attempting to establish itself as the market leader in supplying networking equipment for corporate data centers.

Dave Donatelli, Hewlett-Packard executive vice-president and general manager of enterprise servers and networking, made his company's intentions clear in a statement that said the move would bring greater competition to the sector.

"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," he stated.

"By acquiring 3Com, we are accelerating the execution of our converged infrastructure strategy and bringing disruptive change to the networking industry."

News of the deal pushed share prices in 3Com up 35 per cent in after-hours trading on Wednesday to $7.66.

When the buyout was announced Bob Mao, chief executive officer of 3Com, said that his organization's extensive product line and innovative technology would combine with the global scale of Hewlett-Packard's operations to serve both companies well.

Earlier this week, Hewlett-Packard also released its preliminary results for the fourth quarter of 2009.

It said net revenue would hit almost $31 billion in the final three months of the year, a figure that is eight per cent down on its income at the same stage in 2008.

But preliminary diluted earnings per share have increased to $0.99 from $0.84 this time last year, something the company attributed to significant growth in its Chinese market.

By Claire Archer