3Com Bailout Confirmed (COMS, NT, CSCO, JNPR)

3Com did confirm the reports of a $2.2 Billion buyout from Bain and Huawei this morning at $5.30 per share.  Why $5.30?  It wasn’t based on the stellar valuation nor was the price on its great hope.  It gets it right above the 52-week high of $5.24 and makes most of the holders who bought shares in the last 3-years a profit if they still held.  Sure there are shareholders buried from prior years, but the "long and wrong" crowd won’t be able to stop this from happening.

We’ve felt so sorry for this company when you look at its history that it is almost going to be a joy not having to cover 3Com anymore.  Management couldn’t fix this on its own, so maybe the private equity and Chinese can.

This will be a more formidable competitor than it has been now that it is in more capable hands.  It won’t be able to completely unseat the giants, but there is a slight impact.  Cisco Systems (NASDAQ:CSCO) is down 0.4% at $33.08 after briefly hittting new highs and Juniper Networks (NASDAQ:JNPR) is down marginally.  The industry dog Nortel Networks (NYSE:NT) is actually up almost 3% today, and you have to wonder if the Canadians hope a bailout is coming their way too.

• Recent earnings looked OK, but the stock didn’t.
• We noted it being for sale previously.
• We also noted it seeing tertiary benefits from Sun’s investment by KKR.
• This will give Huawei its joint venture stake back.

Jon C. Ogg
September 28, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.