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Makers of Special Computers for Data Networks Merge in $750 Million Deal

July 27, 1995

NEW YORK (AP) _ 3Com Corp. and Chipcom Corp., two big makers of components and specialized computers that form data networks, said Thursday they would merge in a stock transaction worth $750 million.

Chipcom will become a subsidiary of 3Com, moving the company from third to second place in the corporate market for data networking equipment, such as adapter cards and so-called ``router″ and ``hub″ computers.

Bay Networks Inc. and Cabletron Systems led the market in unit shipments last year, according to International Data Corp. of Framingham, Mass.

For 3Com, the purchase fills a gap at the high end of its computer line and provides access to several more marketing outlets, most notably the sales force of International Business Machines Corp.

It caps an acquisition spree that has helped 3Com’s sales rise from around $400,000 in fiscal year 1992 to $1.3 billion in the fiscal year that ended May 31.

``3Com has been very voracious in its appetite to acquire a larger dominance in the networking industry,″ said IDC analyst Lee Doyle.

Chipcom had revenue of $268 million in 1994 and $157.7 million through the first six months of this year.

On Wall Street, Chipcom’s stock closed up $7.50 to $37.25 per share on the Nasdaq Stock Market. 3Com’s shares fell $2.12 1/2 to $73.25 also on Nasdaq.

3Com will exchange 0.53 share of its stock for each share of Chipcom. Based on its stock price Thursday and 10.25 million in outstanding 3Com shares and options, the purchase is worth just over $750 million.

There’s no provision in the deal to change the ratio of shares if 3Com’s stock price changes greatly, said Katherine Patterson, director of investor relations at 3Com.

Chipcom’s shareholders will be asked to vote on the deal in October. Government antitrust regulators must also approve.

Prior to Chipcom, 3Com’s purchases have added switches, remote access devices and software to its product lineup. But the company has lacked ``hub″ computers that would serve hundreds of PCs or even hundreds of other hubs at once. Such machines are common in large companies.

``3Com has never had a high-end focus and so the only way for them to remain competitive as they moved forward was through an acquisition,″ said Skip MacAskill, analyst at Gartner Group, an information technology advisory firm.

But he also noted there are some overlapping products and 3Com will face tough choices on how to consolidate the product line.

The company will get a boost from the marketing and product development relationship Chipcom has had with IBM, the world’s largest computer company, since 1992.

3Com and IBM reached an agreement to expand the relationship to allow IBM to sell several 3Com products, primarily adapter cards that go in the back of personal computers so they can be attached to a network. 3Com will be able to sell some IBM advanced networking products as well.

``IBM has an enormous installed base and they’ve done a good job getting Chipcom products out to those customers,″ said Trudy Barker, analyst at Dataquest Inc. in San Jose, Calif. ``It’s important for 3Com to maintain that and they were very careful to make sure that everyone understands the relationship is solid.″

Chipcom’s engineering, marketing and manufacturing activities will continue to operate from its present location in Southboro, Mass., near Boston.

3Com, based in Santa Clara, Calif., on Monday said it would soon undertake a 2-for-1 stock split.

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