SHANGHAI, China — 3Com Corp. said it will pony up $882 million to buyout Huawei Technologies' 49 percent stake in their Chinese joint venture for LAN switches, Huawei-3Com (H3C). The deal values H3C, started just three years ago, at $1.8 billion.
The agreement closes the door on private equity bids that ranged between $1.5 billion to $2 billion.
Texas Pacific Group, Silver Lake Partners and Bain Capital were reported to be among the companies vying for H3C. But before the company could be sold off to an outside party, either of the partners had a right of first refusal.
Late last year, 3Com made its first moves to take control of the company, paying $28 million for an additional 2 percent stake owned by Huawei.
That gave 3C majority control and allowed it to appoint five directors to the H-3C board of directors while Huawei had four slots. 3Com's bid for full ownership came Nov. 15. Huawei accepted it Monday, but not before trying to rally support for a bid of its own.
Huawei is China's largest telecom gear provider and is aggressively expanding in developing markets. One of its key advantages is low cost combined with access to a huge engineering talent pool. Of H3C's 4,800 employees, more than half are tasked to research and development.
To gain immediate access to this combination, 3C agreed to set up the Hangzhou, China-based venture in 2003 to design networking gear, such as high-end routers and switches, which mostly sell into China and Japan. According to IDC, Huawei-3Com currently holds about a third of the Chinese LAN switch market.
After 3Com gained control of the company, Edgar Masri, president and CEO of 3Com, told CRN Magazine: "With an increased ownership in the joint venture, we're going to have more coordinated activities and more influence on adding the feature set that is essential for the midrange."
The deal will close pending approval from Chinese authorities. Under a pre-existing agreement, in certain circumstances, Huawei will not compete with H3C for 18 months after the closing.
3Com did not disclose details of the "circumstances," which could be a source of later conflict since Huawei is also in the market for switches and routers.