Status Report: 3Com - Bain Capital

Feb.21.08 | About: 3Com Corporation (COMS)

3Com Corporation (COMS) has made the following disclosure in a Form DEFA14A filed with the SEC:

"(NYSE:T)he Board considered that, on June 22, 2007, Bain Capital’s initial indication of interest in making a bid to acquire 3Com in a range of $5.25 to $5.85 per share also included an alternate valuation methodology for a purchase of 3Com, excluding the TippingPoint division, of $4.50 to $5.00 per share, in each case subject to obtaining financing and conducting comprehensive due diligence."

In short, shareholders are now being informed that the valuation of the transaction may be reduced by roughly $2 billion as a result of the Tipping Point divestiture, if that action is required to obtain Exon-Florio clearance. Obviously, this is a significant development for COMS shareholders to consider leading up to the February 29 special shareholder meeting. At this point there is no evidence of shareholder concern related to the valuation decline, but this could easily change over the coming days. An adjournment of the COMS shareholder meeting would not be terribly surprising under these circumstances.

With respect to the Exon-Florio review which is expected to reach its second deadline shortly, there has been no report of the CFIUS' intentions with respect to issuing a decision or referring the case the White House. It continues to be the expectation of this publication that the CFIUS will not be swayed by the Tipping Point divestiture offer and will instead let the President make the final ruling in this case. If this does indeed occur, the Presidential decision would be due in roughly the second week of March 2008.

Update: As we posted our last update on this deal, COMS and Bain Capital announced the withdrawal of the Exon-Florio application with the CFIUS. COMS has issued the following statements:

“We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,” said Edgar Masri, President and CEO of 3Com Corporation. “While we work closely with Bain Capital Partners and Huawei to construct alternatives that would address CFIUS’ concerns...”

It is now abundantly clear that this transaction will not succeed with Huawei involved as a partner, regardless of concessions offered by the companies. If the companies do intend to move forward with this deal, Hauwei's interest will likely have to be bought out and another investor brought in to fill the void. Otherwise, the chances of this transaction being successfully completed now appear to be virtually nil.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.