Feds Flatten 3Com Purchase By Bain, Huawei

Friday, March 21, 2008 by Mistlee

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Internet Financial News March 21, 2008

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Feds Flatten 3Com Purchase By Bain, Huawei

Feds Flatten 3Com Purchase By Bain, Huawei

3Com aimed at the exit ramp, but ended up slamming into a concrete abutment in the form of the Committee on Foreign Investment in the United States ( CFIUS), an office under the Treasury Department. CFIUS determines if mergers will threaten national security by placing sensitive organizations under foreign control.

The networking company accepted the Bain proposal in September 2007. Huawei would have been part of the deal, owning up to a fifth of 3Com based on other provisions.

China's government controls Huawei, however. That situation raised red flags with CFIUS, as Bloomberg noted:

The Committee on Foreign Investment in the U.S. had planned to block the deal, which would have given Huawei Technologies Co. 16.5 percent of 3Com, Bain said today in a statement. Some U.S. lawmakers objected to the bid because it would have put 3Com's anti-hacking technology, used by the Pentagon, in Chinese hands.

Bain walked away from a fight with CFIUS, leaving an angered 3Com seeking an agreed-upon $66 million termination fee from Bain:

3Com believes that the reasons cited in Bain Capital's press release are not grounds for termination of the agreement.

3Com will continue to fulfill its obligations under the terms of the existing merger agreement while it pursues the $66 million termination fee payable under the merger agreement.

3Com acknowledges that Bain Capital did submit non-binding, confidential proposals to the 3Com Board of Directors, however the Board determined that such proposals were not in the best interest of shareholders.

3Com holds its shareholder meeting today at its Marlborough, MA, headquarters. Stockholders will likely want to know how the deal, which would have expanded 3Com's successful existing reach into the burgeoning Chinese market, failed to coalesce.

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