3Com deal may mean ease in credit crunch; SLM eases stance; ECI deal remembered; Omnicare rumors spark rise

By Evan Weinberger

New York, Sept. 28 - Bain Capital Partners LLC and 3Com Corp. announced a merger agreement Friday, and market watchers breathed a sigh of relief. Another breath of fresh air into the mergers and acquisitions market were reports that SLM Corp. may be softening its stance on demands for a renegotiation of terms by the consortium led by J.C. Flowers & Co.

Also Friday, Avaya Inc. announced that shareholders approved its $8.2 billion acquisition by Lake Partners and Texas Pacific Group. The deal was originally announced June 4 and is expected to close by the end of October, according to a statement released by Avaya.

Avaya is a Basking Ridge, N.J.-based business communications firm. The deal did not light up Avaya stock (NYSE: AV), which ended the day where it began at $16.96.

ECI Telecom Ltd. announced that its takeover by the Swarth Group was complete. Friday would be the last day of trading in the stock on the Nasdaq, and investors appeared to remember.

The big news of the day was the 3Com-Bain announcement. The $2.2 billion agreement is an all-cash deal, and market watchers said that it could be a sign that activity could pick up in the fourth quarter. "It's a cash deal," one market player said. "It obviously shows there's some kind of health in the credit and the merger and acquisition market. Having a deal like the one that was announced today was a positive sign."

A trader on another desk confirmed that sentiment. "I think you will see a bunch of merger deals, but not with the PE crowd," he said of the coming quarter.

Expect to see several closings over the weekend. One market observer said he expected to see Playtex Products Inc. close its sale to Energizer Holdings Inc. by Monday morning. Playtex shareholders approved the deal Thursday.

Also in the pipeline to close with the third quarter, the observer noted, are A.G. Edwards Inc.'s merger with Wachovia Corp. and Laidlaw International Inc.'s acquisition by British bus operator FirstGroup plc.

Rumors percolating of a takeover of Omnicare Inc. drove that stock higher Friday.

The third quarter came to a close with a whimper on Wall Street, despite ending the quarter higher. While positive reports on inflation, consumer spending and construction spending all kept stocks from falling significantly, investors wait warily for the October corporate earnings season.

The Dow Jones Industrial Average trickled down 17.31 points, or 0.12%, to 13,895.63, on Friday.

The Nasdaq dipped to 2,701.50, a loss of 8.09 points, or 0.30%.

And the Standard & Poor's 500 gave back 4.63 points, or 0.30%, to close at 1,526.75 on Friday.

3Com agrees to Bain deal

Marlborough, Mass.-based 3Com, a voice and data networking company, announced Friday that it had agreed to be acquired by Boston-based Bain Capital Partners, LLC. 3Com shareholders will receive $5.30 per share when the deal closes, which is expected in the first quarter of 2008. The all-cash $2.2 billion transaction represents a 44% premium on 3Com stock's (Nasdaq: COMS) Thursday close of $3.68.

The deal got the unanimous support of 3Com's board of directors and senior management, who are all recommending shareholder approval. "The 3Com board of directors and senior management team have thoroughly reviewed our strategic alternatives and have determined that the agreement with Bain Capital provides the best value for 3Com shareholders," Edgar Masri, 3Com's president and chief executive officer, said in a statement. "We believe that this agreement better positions 3Com to establish itself as a global networking leader, which will benefit our employees, our customers and our partners."

While the deal is expected to get full approval, there is one potential sticking point that might give regulators pause. Huawei Technologies Co., China's largest networking firm, is set to take a minority stake in 3Com as part of the deal. While 3Com and Huawei have a history of working on a joint venture together, U.S. politicians have in recent years raised concerns about Chinese firms taking large interests in American industries because they say Chinese industry is not fully open to Western investment.

Since 3Com is a smaller player in the United States, and Huawei is only taking a minority stake in the company, the Bain takeover is expected to face few regulatory hurdles.

After reports of the 3Com-Bain deal appeared in the Wall Street Journal Friday morning, trading in the company was halted early on. But not before 3Com stock gained more than 36% in early trading. For the day, 3Com picked up $1.26, or 34.24%, to close at $4.94. The stock price was edging upward toward the deal price.

Sallie Mae softening stand?

Reports from Bloomberg late Thursday said that SLM Corp., the Reston, Va.-based student lender, was softening its stance on renegotiating its buyout agreement with the investor group led by J.C. Flowers & Co.

The $60 per share, or $25 billion, agreement reached in April hit major turbulence when J.C. Flowers said last week that it did not plan on completing the deal because facts on the ground changed. Flowers asked to renegotiate; Sallie Mae said no.

The facts Flowers cited were a new student lending bill signed into law by President George W. Bush Thursday and the credit crunch that has already scuttled or changed several leveraged buyouts since the summer. The new law, which was first floated in January and was widely discussed when the Sallie Mae LBO was reached, will cut subsidies to student lenders and increase government grants for higher education grants. The bill took shape after several federal and state investigations found shady dealings by several student loan companies, including bribes paid to college financial aid officials.

SLM officials left a meeting with Flowers officials in a huff, according to media reports, after Flowers informed Sallie Mae that it wanted to renegotiate. The requisite mentions of legal action were made by Sallie Mae in a press statement, but they appear to be softening their stance, Bloomberg reported.

Sallie Mae stock (NYSE: SLM) skyrocketed Thursday. On Friday, it continued its rise, adding 55 cents, or 1.12%, for a $49.67 close.

The forgotten deal

Petah Tikvah, Israel-based ECI Telecom announced that it had finally been acquired by private investment shop the Swarth Group. The deal is for $1.2 billion, or $10 per share, and was announced at the end of July.

Shaul Shani of the Swarth Group will be the new chief executive officer of ECI. "It is now time for all of us to focus on ECI's future, leverage the company's strong market position and take advantage of market trends which represent promising growth opportunities for ECI," he said in a statement released Friday.

ECI develops voice and data transmission methods for telecommunications firms around the world.

The deal appears to have slipped under the radar a bit over the summer, because the stock shot up more than normal when an expected deal is completed.

"I think it's the fact that nothing has been said for the last two months," one market source said, adding that many investors may simply have forgotten about it.

ECI stock (Nasdaq: ECIL) closed its final day of trading at $9.96, a rise of 36 cents, or 3.75%.

Omnicare rumors spark revival

Several weeks ago, Covington, Ky.-based geriatric pharmaceutical producer Omnicare was the subject of takeover speculation. "They were rumored to be a deal stock," a trader said. There were no details to the rumors, and they quickly faded.

But the company's stock has made a comeback over the last week, the trader said, despite there being no real news involving the company in recent days. That's led to increased chatter that the company is ripe for a deal again.

Omnicare stock (NYSE: OCR) gained 95 cents, or 2.95%, Friday, closing at $33.13.

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