3Com Hit With Shareholder Suit Over $2.7B HP Deal

By Jacqueline Bell

Law360, New York (November 13, 2009) -- Networking and security services provider 3Com Corp. has been hit with a shareholder class action seeking to block the $2.7 billion merger agreement with Hewlett-Packard Co. announced Wednesday.

Plaintiff David B. Shaev filed the action Thursday in Delaware Chancery Court, claiming the proposed merger agreement, which involves HP paying stockholders of Marlborough, Mass.-based 3Com $7.90 a share, constitutes a breach of 3Com's fiduciary duties owed to public shareholders, and argues that 3Com's directors should have pushed for a higher price.

The complaint alleges the defendants are attempting to deceive 3Com shareholders and unfairly deprive them of the true value of their investment in 3Com.

Also named in the complaint are Eric Benhamou, chairman of the board of directors of 3Com; Robert Mao, CEO of 3Com; and Ron Sege, chief operating officer of 3Com, in addition to the entire board of directors.

“Having accepted HP's offer, the director defendants failed to take all reasonable steps necessary to ensure that the company's stockholders would receive the maximum value realizable for their shares in any transaction effecting the change of corporate control,” the complaint claimed, labeling the offer 3Com accepted on behalf of shareholders as “grossly inadequate.”

Shaev seeks to block consummation of the merger between 3Com and HP, or, if the merger is completed, seeks damages caused by an alleged breach of fiduciary duties.

On Wednesday, the companies announced that HP had agreed to acquire 3Com for $2.7 billion, in a move aimed at least partly toward expanding HP's business in China.

The transaction is expected to close in the first half of 2010, the companies said Wednesday.

The acquisition will “transform” the networking industry into one that is built on the convergence of servers, storage, networking, management, facilities and services, the companies said.

Customers of the new HP will benefit from a simplified network and improved information technology service delivery, according to the companies, and the combination will allow HP to expand its Ethernet switching offerings and routing solutions.

As part of the acquisition, HP will add a research and development team in China, building on 3Com's presence there through its H3C routing solutions brand. HP will also acquire 3Com's Tipping Point brand of networking security products in the deal.

The acquisition is awaiting approval from domestic and foreign regulators, as well as 3Com stockholders. HP expects to reduce earnings per share on 2010 non-generally accepted accounting principles revenue.

HP is the world's largest technology company, with 300,000 employees, according to the company.

A representative for 3Com could not immediately be reached for comment Friday on the shareholder class action filed in Delaware Chancery Court.

The plaintiff is represented by Harwood Feffer LLP and Rosenthal Monhait & Goddess PA.

Counsel for 3Com and the individual defendants could not immediately be determined.

The case is David B. Shaev v. 3Com Corp. et al., case number 5067, in the Court of Chancery of the State of Delaware.

--Additional reporting by Elaine Meyer