Status of HP’s 3Com Acquisition

I’ve gotten some questions about what stands in the way of HP’s pending 3Com acquisition.

We might hear more on the matter from HP when it reports its quarterly financial results tomorrow, but my understanding is that the primary obstacle to the formal consummation of the deal is the second-phase of a review undertaken by China’s Ministry of Commerce (MOFCOM).

Quoting from a Form 8-K submitted by 3Com to the US Securities and Exchange Commission (SEC):

Under the Anti-Monopoly Law of the People’s Republic of China, the parties are required to submit a filing to the Ministry of Commerce (“MOFCOM”). The parties made a joint filing on December 4, 2009. MOFCOM formally accepted the filing on December 28, 2009, commencing the 30-day Phase I review process. On January 25, 2010, MOFCOM notified the parties it would not complete its review by January 27, 2010, the end of the Phase I review period, and that a Phase II review would be initiated. The initial Phase II review period is up to 90 days and can be extended by MOFCOM by up to an additional 60 days.

The parties continue to target completion of the merger by the end of April 2010, however the exact timing cannot be predicted. The closing of the merger is subject to the satisfaction or waiver of specified closing conditions, including, without limitation, the expiration or termination of waiting periods, and obtaining of requisite approvals or clearances, under specified antitrust and competition laws (including, without limitation, in China and the European Union, among others).

The acquisition was approved by the European Union, so the Chinese regulatory review stands as the last barrier to the deal’s completion.

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3 responses to “Status of HP’s 3Com Acquisition

  1. Perhaps HP is evaluating 3Com’s faded brand and how to best persuade Western companies to take a chance on its products, designed largely in Asia.

    • It’s possible, but I presume HP did thorough due diligence before moving to acquire 3Com.

      For whatever reason, China’s government has extended the review period. My feeling is that the deal will eventually go through. I think China is posturing a bit in the wake of the Google controversy.

  2. Wow, the China-US saga continues and this is not so good for HP expanding its footprint in China…

    http://www.ft.com/cms/s/2/dd69e680-2e06-11df-b85c-00144feabdc0.html

    Google to shut China search engine
    By Richard Waters in San Francisco and Kathrin Hille in Beijing
    Published: March 12 2010 20:11 | Last updated: March 13 2010 02:16

    Google has drawn up detailed plans for the closure of its Chinese search engine and is now “99.9 per cent” certain to go ahead as talks over censorship with the Chinese authorities have reached an apparent impasse, according to a person familiar with the company’s thinking.
    In a hardening of positions on both sides, the Chinese government also on Friday threw down a direct public challenge to the US search company, with a warning that it was not prepared to compromise on internet censorship to stop Google leaving.
    The signs that Google was on the brink of closing Google.cn, its local search service in China, came two months after it promised to stop bowing to censorship there. But while a decision could be made very soon, the company is likely to take some time to follow through with the plan as it seeks an orderly closure and takes steps to protect local employees from retaliation by the authorities, the person familiar with its position said.
    Google is also seeking ways to keep its other operations in China going, although some executives fear that a backlash from the Chinese authorities could make it almost impossible to keep a presence in the country.
    When the search giant first promised to end censorship in response to what it claimed were a series of cyber-attacks mounted from inside China, many China-watchers warned that its public defiance of Beijing would provoke a stern response.
    On Friday, Li Yizhong, minister for industry and information technology, said: “If [Google] takes steps that violate Chinese laws, that would be unfriendly, that would be irresponsible, and they would have to bear the consequences.”
    One person close to the search company, meanwhile, said that its senior executives remained “adamant” about ending the censorship. The company has also ruled out keeping the search service going by handing majority control, or even the entire business, to a local player, this person said.
    Google’s executives have made it clear that they still hope to stay in the country, whatever the fate of Google.cn. “It’s very important to know we are not pulling out of China,” Eric Schmidt, Google’s chief executive, told the Financial Times at the time. “We have a good business in China. This is about the censorship rules, not anything else.”
    The company’s other operations, which pre-date the launch of Google.cn four years ago, include its research centre in Beijing and a sales force that sells advertising on the Chinese-language Google.com search service, based outside China, to advertisers inside the country.
    Mr Li encouraged Google to continue its operations in the country. “[Google] has taken 30 per cent of the Chinese search market.
    “If you don’t leave, China will welcome that, if you don’t leave, it will be beneficial for the development of the internet in China.”
    Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.

    http://online.wsj.com/article/SB10001424052748703822404575019692948948942.html

    Will China Make a Point With 3Com?
    By JOHN JANNARONE
    What is the best fear gauge for U.S. companies operating in China? An obvious one is how well the shares of Google’s local rival Baidu are performing. After all, Google is still discussing with the Chinese government whether or not it will quit the country. Another is 3Com.
    Hewlett-Packard has offered $2.7 billion to buy the maker of networking gear, a deal it intends to close in the next few months. Though both are listed in the U.S., 3Com’s biggest business in based in China—giving Beijing’s antitrust regulator power over the deal. The Chinese Ministry of Commerce, or Mofcom, is notoriously opaque and unpredictable. Two recent steel mergers collapsed because the regulator never announced a decision.
    So no surprise 3Com stock trades at an unusually large discount to H-P’s $7.90-a-share offer. In early January, 3Com traded at a discount of around 4%, roughly double what risk arbitragers say it would have been without the Mofcom factor. Then Jan. 13, the day after Google threatened to quit China, the spread widened to 5%, with volume triple the average for the prior month.
    Why the Google hit? Fears have intensified that China, feeling squeezed by a huge, popular U.S. company and its government, would fight back. For starters, the U.S. blocked a bid by China’s Huawei Technologies and Bain Capital for 3Com in 2008 to keep certain security software out of Chinese hands.
    If Mofcom sticks with its mandate to prevent firms from gaining excessive market share, a green light looks certain. An H-P deal would simply switch one U.S. owner for another. But investors should be on guard in case Beijing decides to flex its muscles.

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