The Wall Street Journal reports that private-equity offers to acquire the entirety of the H-3C joint venture between 3Com Corporation and China’s telecommunications-equipment powerhouse Huawei Technologies now have reached $1.5-billion to $2 billion.
According to WSJ’s sources, one of the original bidders, Texas Pacific Group, has dropped out of the competition for H-3C. That leaves Silver Lake Partners and Bain Capital Inc. still in the running, with Bain now offering the higher bid.
3Com currently owns 51 percent of the Hong Kong-based joint venture, which manufactures routers and switches and sells networking equipment made by 3Com in China and Japan. 3Com would like to buy out the balance of H-3C that it doesn’t own, but Huawei has other ideas, as the following excerpt from the WSJ story makes evident.
"Huawei’s plan is to buy out 3Com and sell the whole of the venture to a private equity firm, taking part of the payment in cash, and part of the payment in shares of a newly set-up holding company," said one person.
3Com, realizing that it doesn’t have the resources on its own to compete against the financial heft of Silver Lake or Bain, apparently has begun discussions with other private-equity firms in a bid to seek financial backing for its plan to take total control of the joint venture.
H-3C is 3Com’s greatest corporate asset, and it will do everything possible to retain and increase its stake. It’s up against daunting competition, however, and it will need help to come through with a winning bid.
The WSJ reports that people close to the deal said they expect the sale of the venture to close by year-end and, given the involvement of private-equity firms, it would likely be a leveraged buyout.