March 5, 1997 5:15 PM PST

USR tries to calm investors

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Some shareholders of U.S. Robotics (USRX) aren't happy about a proposed acquisition by 3Com (COMS).

U.S. Robotics (USR) chairman and CEO Casey Cowell addressed shareholder concerns over its merger with 3Com during its annual meeting today, but it has yet to be seen whether his efforts will satisfy shareholders filing a class-action lawsuit against his company.

"USR shareholders will own roughly half, or about 48 percent, of the new 3Com," Cowell said, in a statement. "So the upside potential is there for all of our shareholders, and we think that this combination will greatly increase our prospects of realizing that potential."

He added that USR is looking to create the strongest possible company with long-term shareholder value.

"I and the senior management of USR will have the better part of our personal net worth invested in this vision of the future of networking," Cowell said.

A USR representative said most of the shareholder questions centered on the company's modem technology and not on the merger. But the suit still reflects some widespread doubts about the wisdom of the merger, or more specifically, the timing of the announcement.

The class action suit, originally comprised of four separate lawsuits, was filed in Delaware courts a day after the acquisition was announced to request a preliminary injunction against completion of the merger. The investors allege that USR isn't getting a fair price from the deal and that company directors breached their fiduciary duty in maximizing shareholder value.

So far, USR executives are not cowed by the case. "We think the suit is without merit," said Karen Novak, a U.S. Robotics spokeswoman. "Suits like this are not uncommon for an acquisition of this size."

3Com isn't scared off, either. "We will defend the acquisition," said Valerie Bellofatto, a spokeswoman for 3Com who says the company expects the merger to close by summer.

Under the proposed deal, 3Com will exchange 1.75 shares for every share of U.S. Robotics. Based on 3Com's share price the day before the acquisition plan was announced, it would be a $6.6 billion stock swap deal, making it the largest data networking acquisition in the United States. Still, analysts have questioned whether USR got the best deal because its stock price was expected to go much higher once it rolled out its 56-kbps modem technology.

Since the acquisition plans were announced on February 26, USR saw its $61 share price fall 9.2 percent to 55-3/8 on Monday. Since then, the stock has recovered some of its lost ground, closing today at 60, up 2-5/8.

3Com, however, has fared even worse. The networking company closed at 39 on the day the deal was announced and fell to 32-7/8 on Monday. It has regained a portion of its price to close today at 35-1/2, up 1-5/8.

 

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