Is 3Com a takeover target?

As speculation mounts that 3Com may be an acquisition target of chip giant Intel or Lucent Technologies, insiders at the networking company have been refraining from selling their shares.

"Either the stock is undervalued at its current share price, or insiders are prohibited from selling now," said Craig Columbus, an insider trading analyst with Disclosure. "The insider activity has the company looking like a potential takeover candidate."

3Com insiders have sold only 1 million shares to date, at $31.56 and $35.38 per share. Since May, only one insider, chief financial officer Christopher Paisley, has sold stock in the company. That sale amounted to 10,000 shares.

Compare those figures to last year's insider sales at 3Com, when nearly 4.8 million shares were sold at prices ranging from $40.31 to $78.88 per share. Those sales included divestitures by former US Robotics insiders after its merger with 3Com closed, but also were low when compared to the roughly 20 million shares sold in 1996, Columbus noted.

A spokesman for 3Com said the company does not comment on acquisition rumors. He said 3Com executives were not immediately available to comment on the slowdown in insider sales.

A couple of weeks ago, 3Com's shares rose 2 points to 27.3125 on speculation that Intel would buy the company. The shares have continued to rise, closing at 32.25 today, up .1875 over Friday.

Peter Andrew, an analyst with AG Edwards, said it is possible--but not probable--that Intel or Lucent will make a bid to acquire 3Com.

"A Lucent or Intel acquisition would make sense, but the wild cards are the NIC and modem business," he said, noting that regulators could raise antitrust questions if either scenario came to pass.

In its second quarter, Intel held 36 percent of the 10/100 network interface cards market, while 3Com held 53 percent. Combined, the companies would represent a whopping 89 percent of that market.

Lucent, meanwhile, is the second-largest supplier of digital signal processor chips, while 3Com receives its supply from Texas Instruments, the largest supplier.

Andrew noted that a third scenario also is a remote possibility. Intel or Lucent could move to acquire only 3Com's system business and then sell off its client business, he said.