3Com’s Acquisition of H-3C: Financing and Competition Questions Unanswered

After reading the official 3Com press release regarding the company’s acquisition of the 49-percent stake of Huawei-3Com that it didn’t previously own, I still don’t know the details of this deal.

Significant questions remain about how 3Com will finance the $882-million purchase of stake it bought from Huawei Technologies. 3Com says it "will communicate the details of its financing plans for the acquisition at a future date." The company is holding a conference call and webcast regarding the acquisition at 6pm EST today, and shareholders and analysts should take an aggressive tack in pursuing answers regarding the financial engineering of the transaction.

Another matter that requires further elaboration is the degree of collaboration and partnership that will continue between 3Com and Huawei now that the latter no longer holds an equity stake in what is now an erstwhile joint venture. 3Com’s provides the following paragraph in its press release:

Under the existing shareholders’ agreement, the parties have agreed that the selling shareholder in the bid process would, under certain circumstances, be subject to a non-compete provision for 18 months after the closing.

From that text, it isn’t clear whether "certain circumstances" were met in this instance. Shareholders and analyst should inquire as to whether Huawei will abide by the 18-month non-compete provision stipulated in the shareholders’ agreement. If not, 3Com has some explaining to do.

Here’s what Edgar Masri, 3Com’s president and CEO, has to say about the past and present of his company’s relationship with Huawei:

. . . . I want to personally thank Mr. Ren Zhengfei, CEO of Huawei, for his efforts and support, as well as recognize Huawei’s contributions to our successful partnership. We look forward to continuing our relationship with Huawei as a key customer of H3C.

In what sense will Huawei continue its relationship with 3Com as a key customer? Again, shareholders and analysts have a right to clear, precise answers.


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