Wednesday, November 11, 2009

BREAKING NEWS: HP to acquire 3Com for a 40% premium(HPQ, COMS)

Both stocks are halted. At first glance, it looks like a marvelous deal for HP.

PALO ALTO, Calif. & MARLBOROUGH, Mass.--(BUSINESS WIRE)--HP (NYSE: HPQ - News) and 3Com Corporation (NASDAQ: COMS - News) (“3Com”) today announced that they have entered into a definitive agreement under which HP will purchase 3Com, a leading provider of networking switching, routing and security solutions, at a price of $7.90 per share in cash or an enterprise value of approximately $2.7 billion. The terms of the transaction have been approved by the HP and 3Com boards of directors.

“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,” said Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, HP. “By acquiring 3Com, we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry. By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data center.”

$2.7billion. Worth noting is that 3Com has $670million in cash on its balance sheet, so this is a purchase price of $2.1billion, or less than 2times this years revenues. It's a PE of 21times next year's earnings, but only 17times 2008 profits. $2.7billion, minus the cash -->> this is a better than 10% Free Cash Flow Yield(FCFY). Well done, HP!

Not sure 3Com directors extracted a high enough price. That said, the price being paid is well above the 5year high:

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