3Com approached by potential acquirers

3Com could become the next company to be acquired by a private equity player or telecom equipment vendor, according to the Wall Street Journal.

Silver Lake Partners, one of the investor groups that agreed to acquire Avaya in June, has approached 3Com in recent months, as has Bain Capital, the Journal reported yesterday, adding that Nortel Networks may also be eyeing the company.

Nortel was rumored to have shown an interest in acquiring Avaya before Silver Lake and TPG Capital offered to buy it for $8.2 billion. But analysts said Nortel would have faced significant integration hurdles had it ended up with Avaya.

Likewise, acquiring 3Com could present more challenges than benefits for Nortel, RBC Capital Markets analyst Mark Sue told Telephony in an e-mail today. “Nortel is making a big bet in the enterprise segment, but combining it with 3Com might bring more headaches than benefits,” he said. “These include product overlap, integration issues and customer confusion. We're not convinced of significant synergies that may come from a potential deal.”

“At one point, 3Com was a contender to Cisco but never took advantage of the right growth prospects,” Sue added. “It exited the enterprise segment only to turn around and change its tone, upsetting its installed base in the process. 3Com is a textbook example of missed opportunities, wrong assumptions and inconsistent execution.”

In a research note this morning, UBS Investment Research pointed out that 3Com’s current market capitalization of $1.7 billion is less than the sum of some of its recent acquisitions, such as its joint venture with Huawei Technologies, which was valued at $1.8 billion when 3Com acquired it for $882 million last fall, and Tipping Point, an intrusion prevention systems startup acquired for $430 million in 2004.

“Yet the company’s earnings power is hurt by management’s slow progress to turn around the deeply money-losing traditional 3Com business,” UBS wrote. “Facing pressure from private equity firms and activist investors, 3Com will need to significantly step up restructuring efforts for the traditional business and/or monetize its assets. We view 3Com’s plan to bring Tipping Point public as a step in the right direction, but we also think more could be done.”