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3Com-U.S. Robotics Merger Aftermath -- After The Dust Settles
By Monica Young & Ken Presti
The strategy at 3Com Corp. has changed dramatically since it's $775-million acquisition of Chipcom Corp. in October, 1995.
One of the motivating factors was for 3Com to gain a network of high-level systems integrators that would push its products into higher-level markets. 3Com has held strong VAR relationships, stimulated partly by comprehensive reseller programs that helped to contribute to overall success for the channel as well as the vendor.
In the wake of the late February $6.6 billion buyout of U.S. Robotics Inc., however, the focus centered upon 3Com's direct-sales force and the extra push the U.S. Robotics merger would provide in the retail market.
3Com had received some criticism for its lack of penetration in the carrier and Internet service provider markets, which U.S. Robotics will provide, analysts said. The carrier and ISP networking space is dominated by Cisco Systems Inc., along with the strong additional presence of Ascend Communications Inc.
While melding two companies into a single entity is never an easy task, integrating the product lines will be relatively easy because only about 2 percent of 3Com's product line overlaps with the U.S. Robotics product line, said 3Com Chairman and Chief Executive Eric Benhamou.
In putting together a strategy for the merger, the leadership of 3Com and U.S. Robotics looked for lessons in the prior merger of Wellfleet Communications Inc. and Synoptics Inc., which formed Bay Networks Inc. That move, in essence, pitted an East Coast culture against a West Coast culture that spun off a variety of issues, some of which are present today.
"We are very thankful to the Bay [Networks] people, because they gave a whole list of things not to do when contemplating a transaction like this. We won't behave like them at all," he said. "This is of a very different nature. The only thing in common is that you have two large organizations coming together, but it stops there."
Ironically, some members of the analyst community believe Bay Networks may be the company with most to fear.
"Bay [Networks] is really going to have to fight in order to maintain its strategic image," said Tom Nolle, president of CIMI Corp., a Voorhees, N.J.-based industry research firm. "[Chief Executive David] House has about six months to do something that will make this industry take notice."
Other analysts suggest similar vendors, including Shiva Corp. and Ascend Communications Inc., will suffer. "Shiva gets pounded down on this one," said Don Miller, principal analyst with Dataquest Inc., San Jose, Calif. "3Com will also go in stronger against Cisco and Ascend, but Ascend is probably more vulnerable because it's smaller."
The new entity will retain the 3Com name. "It took two months of the Bay [Networks] management team to come up with their name and they lost the brand equity with it," Benhamou said, adding, the U.S. Robotics name will live on because it is meaningful to a variety of customer segments.
Benhamou will remain chairman and chief executive. "We won't have political fights for every single position in the organization," he said.
In order to further ensure against inertia, the new board of directors will be made up of seven members from 3Com and only three from U.S. Robotics. "That gives us the opportunity to take advantage of the U.S. Robotics perspective without having stalemates on the board. Things will move much faster," he said.
The merger will establish a company with more than $5 billion in annual revenue and more than 12,000 employees spread over 130 countries.
"The action is at the edge of the network, and we play that game best at the wide-area end of the market, while 3Com does it at the LAN," said Casey Cowell, president and chief executive of U.S. Robotics, who likely will assume the title of 3Com Vice Chairman. "When you look at the increase in bandwidth that we're going to be seeing over the next couple of years, this combination will make us an even more powerful company," he said.
Copyright r 1997 CMP Media Inc.
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