August 9, 2006 10:25 AM PDT

3Com names new CEO

3Com named one of its former business unit executives, Edgar Masri, as its new chief executive, the company announced Tuesday.

Masri, who served in various 3Com senior management roles over a 15-year stretch, is rejoining the company as it seeks to accelerate its turnaround and boost its sales of high-end networking gear. Masri, who will officially start on Aug. 18 as CEO and president, is rejoining 3Com from broadband technology company Redline Communications, where he served as chief operating officer.

Edgar Masri Edgar Masri

Masri is replacing Scott Murray, who is resigning after only eight months as 3Com's CEO and president. Murray is leaving the CEO post because of the considerable time he would need to spend in China as 3Com seeks to increase its ownership stake in Huawei-3Com, its joint venture with equipment maker Huawei Technologies.

"Scott Murray advised the board that, with his young family, he was not able to commit to the extended time in China the venture requires. He therefore believes it is in 3Com's best interest for him to resign at this time, before negotiations begin," Eric Benhamou, 3Com's chairman, said in a statement.

Reckoning with financials and technology
Wall Street was surprised by the executive change, given that Murray had quickly instituted some restructuring changes during his short tenure with the company.

"I thought Scott was the right guy to get the costs down and improve profit margins," said Long Jiang, a UBS analyst. "Scott was unproven to lead 3Com on the technology vision, but for the next year or two, he was the right guy to lead them on the financials...they need to get their financial house in order and get profit margins to a decent level."

In the long term, Masri is expected to be stronger on the technology vision, given his background with the company. Jiang noted, however, that Masri does not have prior experience as a CEO.

One of Masri's tasks will be to negotiate with Huawei on increasing his company's 51-percent stake in Huawei-3Com. 3Com will be able to submit a bid to buy some of its partner's shares as of Nov. 15.

3Com also announced it has hired a new executive vice president of corporate development, Bob Mao, whose focus will be on managing 3Com's interests in Huawei-3Com. Mao, who also will join 3Com on Aug. 18, previously served as chief executive of Nortel Networks' greater China operations from 1997 to this year.

Mao will report directly to Masri, who will serve as chairman of Huawei-3Com.

In the fourth quarter, Huawei-3Com's financial performance was folded into 3Com's results. The networking company announced a narrowed fourth-quarter net loss and a 44 percent increase in revenue over the same period a year ago.

In that quarterly release, 3Com also announced plans to cut 15 percent of its workforce, or 250 positions. The networking company said it expects to have the bulk of its restructuring completed by the end of the year.

Shares of 3Com were down by more than 2 percent to $4.51 a share in morning trading Wednesday.

The company also released Masri's compensation package, which calls for a base salary of $650,000 and an annual cash bonus of up to 200 percent of his base salary, should he exceed his performance goals. Masri will also receive options to purchase a total of 12 million shares of 3Com stock, as well a grant of restricted stock for 500,000 shares, according to the company's filing with the Securities and Exchange Commission on Wednesday.

Although the options portion of Masri's compensation package is considered somewhat high, one compensation expert notes Masri will need to scale several obstacles to collect the brass ring. Half of the 12 million options can be exercised only if 3Com's stock rises by double digits.

According to Masri's employment agreement, 3Com's stock needs to rise by 20 percent to exercise 3 million options and by 30 percent for the other 3 million. Masri, as a result, could end up exercising all 12 million options, which represent roughly 3 percent of 3Com's outstanding stock.

"It's on the high end of packages, but it's not wacky," said Jon Holman, head of Holman Group, an executive recruitment company. "Most companies this size issue options that represent 1 to 2 percent of their outstanding shares, but half of his options are only good if the stock goes up by 20 and 30 percent."

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compensation, networking company, CEO, profit margin, China

 

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