The largest merger in the history of the networking industry was announced today when 3Com and US Robotics agreed to join forces.
The $6.6 billion deal creates a company with a combined revenues of $5 billion and an installed base of 100 million network points. Although both parties insisted this is a merger of equals, not a takeover, the new entity will take the 3Com name. The deal will also stifle industry speculation that 3Com itself was about to be acquired, with IBM believed to be interested.
The merged organisation will have more than 12,000 employees in some 130 countries. The companies said there were no short term plans for lay-offs although some analysts believe some rationalisation is inevitable. Although the partners' product lines are broadly complementary, there are some areas of overlap and, in the cut throat world of networking, shrinking margins make economies of scale attractive. The partners are already talking about pooling some manufacturing resources round the world.
The betrothed couple were more ready to talk about the market presence their combined weight will provide. They claim no other company will have more customers using its technology to connect to the Internet and corporate networks, and that the merged product range will cover every aspect of network access and corporate networking from Lan interface cards and enterprise switches to the high speed 56Kbps modems pioneered recently by USR.
However, some see the merger as an attempt by two fading stars to regain former glories. 3Com has seen its traditional Lan markets becoming less profitable and has undergone a sometimes tough transition to being an enterprise supplier. USR has also seen its core modem market shrink and even its 56K devices, which will be in great demand for Internet access, have not hit shipment targets and have been beaten to market by rival technology from Lucent.
Pooled distribution is seen as a major benefit for both sides. 3Com will gain access to USR's more highly developed retail channel while USR's products will gain from 3Com's stronger profile in Europe and in large corporations. 3Com has a large direct salesforce but USR is well established in the vital and growing Internet service provider sector.
Under the terms of the agreement, each USR share will be exchanged for 1.75 shares of 3Com stock. The transaction will be accounted for as a pooling of interests. The financial effect on 3Com's fiscal year should be "neutral to slightly accretive". Regulatory approval and completion of the deal are expected this summer. There will be a one-time charge against earnings during the quarter in which the deal closes.
3Com chief executive Eric Benhamou will remain at the helm of the combined company while USR chief Casey Cowell will become vice chairman.
"The combination of 3Com and US Robotics dramatically alters the networking landscape with the industry's broadest set of innovative, feature-rich network access solutions," said Benhamou. "Together, with an installed base of over 100 million network connections, we can offer network users the fastest access to their local and wide area networks."
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