Traders Increase Buying of 3Com Call Options, Expecting Stock Gains

The Wall Street Journal reports today that traders were buying call options in 3Com shares at heavier-than-usual volumes yesterday.

The WSJ quoted Stacey Briere Gilbert, chief options strategist at Susquehanna Financial Group, who said traders were picking up options that allow them to buy the stock for $5, but with no apparent timeline in mind. Traders bought large amounts of calls that expire in November, December, and January.

Since 3Com isn’t due to report earnings again until December, the relative call-buying frenzy likely is related to the private-equity bidding war for the H-3C joint venture owned by 3Com and China’s Huawei Technologies Co.

Bids for H-3C, in which 3Com holds a 51-percent stake, have reached $1.5 billion to $2 billion, according to people familiar with the matter.

Originally, three private-equity firms were involved in bidding for H-3C, but the WSJ reported yesterday that Texas Pacific Group had withdrawn from the competition. Silver Lake Partners and Bain Capital Inc. are still in the running, with Bain said to be offering the higher bid.

3Com would like to buy out the balance of H-3C that it doesn’t own, but it doesn’t have the financial resources to compete against the financial heft of Silver Lake or Bain. Accordingly, 3Com has begun discussions with other private-equity firms in a bid to seek financial backing for its plan to take complete control of the joint venture.

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2 responses to “Traders Increase Buying of 3Com Call Options, Expecting Stock Gains

  1. Who would buy a company where the management has managed to drain almost $1billion in net tangible assets from the balance sheet and still not be able to increase revenues or be able to operate at a profit. The ‘Executives’ continue to drain the equity into their personal coffers and the bagholding stockholders continue to lose more and more. I held COMS for three years and finally figured out their game and got out 9 months ago. They need to clean house!

  2. 3Com has been poorly managed for years.

    Chairman Eric Benhamou was regarded highly in Silicon Valley back in the 1990s, but that was before 3Com’s clumsy exit from the enterprise market, several ill-considered or poorly executed acquisitions, and an ultimately unsuccessful foray into the telecommunications market.

    Still, what’s at issue here is the joint venture H-3C, not 3Com. The way I see it, 3Com has two fundamental options: It can buy the percentage of H-3C that it doesn’t own — which might cost it as much as $1 billion — or it can sell its stake in the joint venture for a somewhat higher amount.

    Shareholders in 3Com, perhaps lacking confidence in the company’s executive management, might prefer to see the company sell its portion of the joint venture rather than see the company work in conjunction with private-equity firms to buy out the balance of of H-3C.

    If that were to happen, though, 3Com would be left with the money from the transaction and little else, other than its TippingPoint intrusion-prevention unit, enterprise LAN gear that isn’t selling all that well, and enterprise VoIP technology that is lagging the market leaders.

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