After everything Bain and Huawei have done to reach this point, is buying 3Com still worth it as the US teeters on the edge of recession? CNN had a story about takeover target’s (such as 3Com) stock dropping over concerns that the money may dry up. The article was framed as an indicator of investor sentiment; there are concerns about credit markets and the availability of money for financing.

In 3Com’s case, I wouldn’t be concerned about the money. Funding is coming from Asia, not America. A much bigger concern is whether or not the acquisition still has merit. Demand for money to take 3Com private should be a bigger concern for investors when they vote on March 21. They’re being offered a deal that values 3Com at twice its market price.

3Com isn’t a profitable company. The only money it makes is from supplying Huawei via H3C in China. They have a range of LAN equipment that they’re going to have a difficult time selling during a recession. Even at today’s exchange rates, US$2.2 billion is a lot to pay for a barely-going concern. I can only guess that amongst the many, many things that Bain knows that I don’t know, they know of some value in 3Com.

It still works for Huawei, they’ll get a measure of control over H3C without having to spend anything like the US$840-odd billion that 3Com stumped up in March ‘07 to take full ownership of the erstwhile joint venture. Huawei is H3C’s biggest customer. It is staffed by former Huawei employees. I’m pretty sure they have a fair measure of control already.

It was the deliberations of CFIUS (the Committee on Foreign Investment in the United States) that dragged the acquisition process out. Indeed, CFIUS has yet to give its approval. They’ve been deliberating since October, although they are expected to give the go-ahead once 3Com has been reorganized to their satisfaction.

I’m sure 3Com’s investors hope they hurry up. Time’s running out to get someone else’s money’s worth.

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