CHICAGO - 3Com Corp., a maker of computer networking products, is buying modem maker U.S. Robotics for $6.6 billion as the two seek to become a leader in the business of connecting computers.
The deal announced Wednesday combines two of the biggest players in the networking business, which has grown quickly and become a bigger part of computing with the emergence of the Internet.
3Com's strength is working with large corporate customers, while U.S. Robotics is best known as a consumer company that specializes in modems. The combination should be able to reach more consumers in both areas.
Additionally, the greater reach and product offerings are expected to let the new company, which will retain the 3Com name, be in a better position to influence the emerging standards of networking technologies.
The deal will create a high-tech company with $5 billion in annual revenue and more than 12,000 employees. Company executives said it would be one of the two biggest competitors in every facet of the business.
Computer networking involves the linking of groups of machines, often within a single company, to allow employees to work together even if they are several hundred miles apart. It is one of the fastest-growing areas in the computer business today and has seen rapid consolidation amid fierce competition.
"The combination of 3Com and U.S. Robotics dramatically alters the networking landscape," said Eric Benhamou, 3Com's chairman and chief executive. Benhamou will keep the top job at the new company.
Santa Clara, Calif.-based 3Com will acquire U.S. Robotics, of Skokie, Ill., with its own stock, giving Robotics shareholders 1.75 shares of 3Com for each share they hold. That works out to $6.6 billion as of Wednesday's close.
Casey Cowell, chairman and chief executive of U.S. Robotics, said the combination will allow the new company to sell its products to a variety of customers including big and small corporations, telephone carriers, network and Internet service providers, and consumers.
Cowell will join 3Com's board as vice chairman but will have no say in the day-to-day operations of the new company. The deal is expected to close by early summer.
The news was announced after markets closed Wednesday. 3Com shares closed at $39, down 12« cents on the Nasdaq Stock Market. U.S. Robotics was off 50 cents at $61 in Nasdaq trading.
3Com shares have fallen by almost 50 percent in the past month amid concerns about general weakness in the networking sector that have also weighed on U.S. Robotics' stock. The companies began considering the deal in the past two months, Benhamou said.
America Online this week announced it planned to go with U.S. Robotics technology for a recently released modem, the x2, that allows users to download information at nearly double the speed of other modems.
The deal also is likely to lead to a protracted battle with Motorola Corp., which next week hopes to unveil its own product. The company has sued U.S. Robotics, accusing the company of using Motorola technology in its modems.