In Battle Between Outfitting Data Centers, Some Winners Have Emerged

By Brenon Daly

Although the battle between Hewlett-Packard (HPQ) and Cisco Systems (CSCO) over outfitting datacenters is still playing out, some winners have already emerged. First and foremost, the shareholders of 3Com (COMS) have benefitted tremendously from the turf war between the two tech titans. On Wednesday, HP said it is picking up 3Com for $3.1bn, bolstering its ProCurve lineup with 3Com’s switches and routers, which are Cisco’s core products.

Terms call for HP to hand over $7.90 in cash for each share of 3Com. That’s roughly 50% higher than 3Com shares garnered in an unsuccessful buyout two years ago and nearly four times the price of 3Com stock just one year ago. Additionally, it means that anyone who bought shares in 3Com over the past half-decade will be above water on their holdings when the sale to HP closes in the first half of next year. We can’t say that we’ve seen many situations like that in recent transactions. In most cases this year, the sale prices of public companies – particularly those that have faded in recent years, like 3Com – have been below the market prices they fetched back in 2007. And that was before any takeout premium.

But there are other parties that stand to come out ahead in the HP-3Com deal, as well. We have to imagine that the bankers at Goldman Sachs (GS) are glad (if not relieved) to have their client, 3Com, looking likely to have finally been sold. Goldman was advising the networking vendor back in 2007 on its proposed sale to Bain Capital and Huawei Technologies, which dragged on for a half-year before being scuttled due to national security concerns. There are success fees and then there are well-earned success fees.

Meanwhile, on the other side of the desk, Morgan Stanley (MS) also has reason to celebrate its work with HP. Not only is the pending purchase of 3Com the largest enterprise networking transaction since mid-2007, but the deal continues a strong recent run by Morgan Stanley. This week alone, the bank advised HP on its $3.1bn purchase of 3Com, AdMob on its $750m sale to Google (GOOG) and Logitech (LOGI) on its $405m acquisition of LifeSize Communications. Altogether, that means Morgan Stanley has had a hand in three of the four largest deals this week.

Comments

[doodoo:]

Amazing that a co. must pay out hundreds of millions to have someone look at another co. and tell them to buy or not to buy. Seems to me I read that Buffet didn't need to hire anyone to pay 10 times what HP paid for COMS. Looks to me like a waste of money. These co. have lawyers don't they. Maybe a few $ in kick backs? After all the execs. have to make a little money any time they take time from their busy schedule to do anything that would require them to use up some of their TALENT. Hell,why should they have to look at another co. balance sheet or other co. documents and determine whats going on.Their bonus money probably doesn't include them to be anything but talented and we as stockholders must know they have talent or they wouldn't make all those huge $ that they make.You figure it out.

Nov 13 11:58 AM