3Com to Buy US Robotics!!

I Find Karma (adam@cs.caltech.edu)
Thu, 27 Feb 97 02:25:10 PST

Rohit wrote:
> From khare@anansi.w3.org Thu Feb 27 01:12:14 1997
> To: adam@cs.caltech.edu
> Subject: I'm a kickin' mahself again
> 3com buys USR, stocks up 17%. Should a bought on the news in that
> Herring piece.
> Doh.
> RK

Darn, so close, with that recent 3Com acquisition of mine. If only we
had bought USRobotics instead!!

This makes TWICE, Rohit, you knew of a big stock leap a day or two
before it happened in the last 2 weeks. Why aren't you FoRKing THESE bits?

Interesting line from below:
> Analysts said the deal could pose a threat to Ascend Communications
> Inc., the market leader in remote access devices, because 3Com's
> ownership will add credibility to U.S. Robotics.

Gee, I would have said it was the other way around: U.S. Robotics adds
credibility to 3Com, who is otherwise losing respectability to Intel and
Ascent lately.

-- Adam, fixing a nasty bug with Joe

PS - Rohit, keep those stock tips coming!

Included message:

3Com Plans to Acquire U.S. Robotics


SAN FRANCISCO -- 3Com Corp. said Wednesday that it would acquire the
U.S. Robotics Corp. in a $6.6 billion stock swap that would create the
second-largest computer networking company.

The acquisition would strengthen 3Com's hand against competitors,
particularly Cisco Systems Inc., the leader in computer networking, by
broadening its product line.

While 3Com, based in Santa Clara, Calif., is a market leader in local
area network equipment, best known for its Ethernet adaptor cards, which
connect personal computers to local area networks, it has lagged behind
in wide area network devices, which connect over much longer distances.
U.S. Robotics, however, is a major maker of remote access servers, which
handle incoming calls at services like America Online.

Indeed, 3Com's chairman and chief executive Eric Benhamou said Wednesday
that U.S. Robotics' business supplying Internet service providers and
online services was one 3Com had long coveted.

"What this gives 3Com that they didn't have before is a full end-to-end
solution for networks," said Peter Stoneberg, a managing director with
Montgomery Securities, referring to the ability to offer local
networking and remote networking devices. "Cisco changed the landscape
of this industry. The others have to catch up."

The deal was announced after the market closed Wednesday, but shares of
U.S. Robotics surged in after-hours trading. The stock was up $10.50,
or 17 percent, to $71.50, and 3Com shares were up $2, or 5 percent, to
$41, before the Nasdaq market halted trading in both stocks.

Under the terms of the deal, each share of U.S. Robotics' stock will be
exchanged for 1.75 shares of 3Com stock, which values each U.S. Robotics
share at $68.25 based on Wednesday's closing price of $39 for 3Com

The relatively small premium being paid for U.S. Robotics reflected the
fact that the deal was essentially a merger of equals, analysts said.
But they added the deal made good strategic sense for both companies.
Ever since Cisco went from being a router company to a company that
offered a full line of networking devices, mostly by acquiring a string
of companies, competitors have struggled to keep up.

"They become a much more credible competitor to Cisco together than
either was separately," Stoneberg of Montgomery Securities said.

The combined company would have $5 billion in revenues and more than
12,000 employees. Benhamou of 3Com will continue in his positions, while
U.S. Robotics chairman and chief executive Casey Cowell will become vice
chairman of 3Com's board.

Additionally, U.S. Robotics' president and chief operating officer John
McCartney will join 3Com's executive staff. U.S. Robotics' Chicago
headquarters will become a division of 3Com.

U.S. Robotics, based in Skokie, Ill., is is primarily known for consumer
modems, which line personal computers telephone lines.

But Benhamou said: "We don't view U.S. Robotics as a modem company,
although that is a valuable technology they own. In fact they are a
leader in the remote access space."

Noel Lindsey, an analyst with Deutsche Morgan Grenfell, said that
although the modem business would continue to grow, it was the remote
access server business that made U.S. Robotics attractive.

"Given the strategic value of that market, it's no surprise Robotics is
a takeover target," he said. "3Com has tried to do these products on
their own and they have really not been successful."

Analysts said the deal could pose a threat to Ascend Communications
Inc., the market leader in remote access devices, because 3Com's
ownership will add credibility to U.S. Robotics.

The deal will also put additional pressure on Cabletron Systems Inc. and
Bay Networks Inc. to broaden their product offerings. "They are starting
to look like point product providers in an industry dominated by
end-to-end solutions," Stoneberg said.

Benhamou said both 3Com and U.S. Robotics excelled at producing devices
that contained a large amount of their own technology but that could be
sold at very competitive prices.

"We know exactly what it takes in a high volume competitive market to
grow share and maintain margins," Benhamou said.

"We've done this for 15 years and so has U.S. Robotics. We each have,
relative to competitors, a very strong and deep focus on technology. We
design the product at a deeper level than the competition so we're in a
good position to hang on to more of that value."

But the networking market is brutally competitive, and 3Com announced
earlier this month that it would not meet analysts estimates for its
current quarter, which ends Feb. 28. 3Com attributed the shortfall to
slowing sales in December and price cuts by the networking division of
Intel Corp. The company also announced price reductions on its Ethernet

3Com said revenues would range from $770 million to $810 million, up
from $606 million in the comparable quarter a year earlier. The company
said it expected that per-share earnings for the fiscal third quarter
would range from about 45 cents to a little above 50 cents, up from 42
cents a year earlier.


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