3Com & U.S. Robotics Merger Conference Call

MF Templar On Merger

SEC's Edgar Financials

3Com's Website

US Robotic's Website

The data-networking world got a little smaller last night after 3COM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> announced it intended to acquire all of the outstanding shares of U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>. The Santa Clara, California-based networker proposed swapping 1.75 shares of 3Com common stock for each share of U.S. Robotics.

In this special collection, we've aggregated a number of Foolish features, and have provided you with links to other data sources and the 3Com and U.S. Robotics message folders. Enjoy!

Transmitted: 2/27/97

[This article originally appeared in the Motley Fool's Lunchtime News.]

FOOL PLATE SPECIAL
An Investment Opinion by MF Templar

3Com Merges with U.S. Robotics

The data-networking world got a little smaller last night after 3COM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> announced it intended to acquire all of the outstanding shares of U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>. The Santa Clara, California-based networker proposed swapping 1.75 shares of 3Com common stock for each share of U.S. Robotics. Initially shareholders of U.S. Robotics were jubilant, pushing shares past $65 a stub in after-hours trading. This morning U.S. Robotics is only up $2 1/2 to $63 1/2, while shares of 3Com slid $2 5/8 to $36 3/8. 3Com is issuing 154.2 million shares to acquire U.S. Robotics, valuing the Skokie, Illinois-based company at roughly the same price as the market currently estimates 3Com is worth. The combined company will be worth $11.9 billion, with $5.1 billion in trailing sales, 11.7% profit margins and $1.78 in trailing earnings per share (EPS).

Shareholders of both companies have had a rough ride over the last few months and given the market reaction to the merger, things are probably not going to improve anytime soon. 3Com has been crushed since hitting the low $70s in early January due to much-publicized price-cuts on network interface cards (NICs) and some price promotion on low-end hubs and switches. U.S. Rob tics has been on a roller-coaster ride as its lead-time in the race to bring 56 bits/second modem technology to market has apparently been reportedly diminished, as ROCKWELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %> says it will have its competing 56KFLEX on the shelves in early March. Given Robotics only shipped on Monday, if Rockwell can manage to keep its promise the two standards will be available to consumers within a two-week period, costing Robotics a critical advantage.

Combined estimates call for the combined company to make roughly $2.00 in EPS this fiscal year and $2.61 the next year, assuming that profit forecasts remain intact. These numbers were calculated by taking the current estimates, multiplying them by the current shares outstanding for each specific company and then dividing the sum of the earnings by the new number of shares outstanding. As 3Com and U.S. Robotics say that there will be no dilution and that the merger might be slightly accretive to next year's earnings as they will save on research, development, general and administrative costs, these numbers are probably a pretty good start for investors. This values the entire company at 20 times trailing earnings, 18 times this year's estimates, and 13.7 times next year's estimates. At 2.3 times sales with operating margins of roughly 17% to 18%, if the combined company can merge with minimal chaos, this could be an attractive longer-term opportunity.