Hewlett Packard to acquire 3COM

Last week, 3COM agreed to be acquired by Hewlett Packard (HP) in a transaction that values the entire company at approximately 2.7bn USD. HP offers 7.90 USD per share to takeover the provider of networking solutions. Stocks of 3COM closed at 5.69 USD at the 11th November, the trading day ahead the announcement. The offer incorporates an acquisition premium of nearly 39%.

During the trading session of the 11th November, the share price already rised around 5.2% while the overall market rose only by 0.4% (Dow Jones) and 0.7% (Nasdaq). Shares of the competitors Cisco and Juniper Networks rised merely by 1.1% and 1.8%. It seems that either some market participants anticipated the announcement or that HP used the day to buy agressively shares of 3COM to increase its toehold.

Enterprise and Equity Value

According to press release of both companies the enterprise value of the transaction is aproximately 2.7bn USD. The takeover offer implies an equity valuation of 3.1bn USD (392.17 million shares outstanding multiplied by 7.90 USD). 3COM's report for first quarter fiscal year 2010 shows Cash and Cash-Equivalents of 626m USD and Debt of 200m USD, which leads to Net Cash of 426m USD and to an enterprise value sligtly below 2.7bn USD.

Implied Transaction Multiples

The financial results of the business year ending 31 May 2009 imply a sales multiple of 2.4, an EBIT multiple of 30.8, an EBITDA multiple of 28.3 and a P/E ratio of 23.3.

Using the data of the last four quarters (Q2 08/09 until Q1 09/10) leads to the following multiples: Sales 2.5, EBIT 101.4, EBITDA 99.5 and P/E 63.1.

Sales of the business year 08/09 imply a multiple of 2.4. Due to negativity other multiples are not computable for this period.