The largest merger in the history of the networking industry, between 3Com and US Robotics has divided industry opinion. Is 3Com set to be a networking powerhouse? Or will time-wasting channel conflicts alienate resellers worried about long-term relationships? Will the necessary rationalisation cut far deeper than 3Com is prepared to admit?
The jury is out. The $6.6 billion share exchange creates a colossus with about $5 billion turnover. The new company is called 3Com, not 3Com-USR. This is not an indication that 3Com has the whip hand, according to USR, but we know who?s wearing the trousers. This amicable joining is no marriage of equals. Not only is the mega-company called 3Com ? ?a decision that took all of two minutes?, according to 3Com CEO and chairman Eric Benhamou and USR chairman and founder, Casey Cowell ? but the board is split seven to three in 3Com?s favour. Benhamou continues in the driving seat, while Cowell rides pillion as vice chairman.
There has been a rash of mergers and alliances in the networking sector, most of which are aiming for enterprise capability, covering the whole spectrum of Lans, intranets, Wans and internet. But many have proved highly expensive distractions. Cisco reckons that 50 per cent of large mergers and acquisitions fail. With 2,000 fewer employees than the merged 3Com-USR, its recent Stratacom acquisition, and anticipated revenues of $6.5 billion, it feels it can comment on where 3Com is going astray.
Large mergers of ?equals? in high-growth markets typically cause both companies to lose momentum. Taking a swipe at the rest of the competition, Cisco cites Bay Networks as an example of how mergers cause companies to lose momentum. Benhamou and Cowell agree, saying waspishly: ?Bay is a model of how not to do a merger.?
Cisco comments: ?The deal combines product lines but it doesn?t address the future of networking ? software and network services. Long-term industry leadership is based on software, which this merger doesn?t address at all.?
3Com disagrees. ?Customers are driving this merger,? says Benhamou. ?What they lack, and what they want, is a one-stop shop ? a supplier who blends different networking technologies and provides end-to-end connectivity.?
3Com is very experienced in the politicking of mergers and acquisitions. But the USR purchase looks extremely ambitious, and driven more by growth requirements than technology considerations.
I trust this is not a deal too far.
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