Hewlett-Packard to Buy 3Com for $2.7B

Updated from 12:40 a.m. EST

PALO ALTO, Calif. (TheStreet -- Hewlett-Packard(HPQ Quote) on Wednesday struck a $2.7 billion deal to acquire 3Com(COMS Quote), a shocking move aimed at bolstering its networking business.

The 3Com deal, which was announced after the market closed, is a clear indication of Hewlett-Packard's desire to tackle its long-time partner Cisco(CSCO Quote) in its own backyard. Cisco stepped on H-P's toes earlier this year when it entered the server market, signaling all-out war between the two companies.

"Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been imposed by a single vendor," said Dave Donatelli, vice president of H-P's enterprise server and networking division, in a statement.

Mark Hurd, H-P CEO

The $7.90 per share all-cash deal has been approved by both companies' boards, and is expected to close in the first half of next year.

3Com's shares rose $2, or $35.15%, to $7.69 in extended trading as investors responded to the deal. Hewlett-Packard's stock, however, headed in the opposite direction, dipping 32 cents, or 0.64%, to $49.68.

Hewlett-Packard will now combine its own ProCurve networking portfolio with 3Com's offerings, significantly boosting its reach in corporate data centers. With many firms rethinking their IT strategies as the economy emerges from the recession, H-P is clearly laying the foundations for the future. Specifically, the deal expands the tech bellwether's Ethernet switch and routing products, as well as its presence in China.

Marlborough, Mass.-based 3Com has earned a reputation for aggressive pricing and recently announced plans to expand its Chinese H3C subsidiary into the rest of the world.