LEX The civilised world lives three meals away from punching a neighbour for a ham sandwich. In the tech sector, acquisitive behaviour is starting to suggest that stomachs are rumbling.
Hewlett-Packard has announced an agreement to buy networking equipment maker 3Com, for an enterprise value of $2.7bn. The all-cash deal values the group at almost 25 times prospective earnings before interest, tax, depreciation and amortisation, so shareholder dissent or a competing bid is unlikely. And with only $3.6bn of net debt before this purchase, against a market capitalisation of $118bn, investors in the computer hardware maker were unmoved by HP’s decision to overpay in aftermarket trading.
Yet the move is a response to aggression by hardware peer Cisco. The group controls most of the market for networking kit that links computers to each other over the internet. But earlier this year it announced a move into HP’s turf by starting to make the computer servers connected to those networks as well. So in a statement of intent, HP intends to throw out all its Cisco kit, replace it with 3Com’s systems, and begin to challenge Cisco’s networking dominance.
Two factors are behind this ratcheting up of hostilities. Companies’ increasing tendency to consolidate data storage and IT systems in large remote data centres is blurring the lines between different markets and turning former partners into competitors. Hence Cisco’s move, as well as software-maker Oracle’s intended purchase of Sun Microsystems. But it also suggests that executives are eyeing the future and see limits to their continued expansion. Investors who have readily joined this year’s tech rally should consider how easy it is go hungry when a food fight breaks out.
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