Bain ends 3Com deal, cites US security panel
By Ritsuko Ando - Thu Mar 20, 2008 10:02pm EDT
NEW YORK, March 20 (Reuters) - Bain Capital Partners broke off a deal with China's Huawei Technologies Co Ltd [HWT.UL] to buy U.S. network equipment maker 3Com Corp (COMS.O: Quote, Profile, Research) due to opposition by a U.S. security panel, and 3Com's shares fell nearly 11 percent.
Bain said on Thursday that the Committee on Foreign Investment in the United States (CFIUS) had said it would block the $2.2 billion deal that would also have given Huawei, China's biggest network equipment maker, a minority stake of up to 21.5 percent in 3Com.
Several U.S. lawmakers have complained that the deal threatened national security due to Huawei's alleged ties to the Chinese military. 3Com sells security technology and network equipment to government agencies and large businesses.
"Bain Capital made several alternative proposals to 3Com that we believe could have satisfied the concerns raised by CFIUS," the firm said in a statement. "We regret that we were unable to agree upon an alternative transaction."
3Com later said it does not believe Bain's reasons for pulling out of the deal were valid and said it would seek a $66 million termination fee payable under the merger agreement.
Many investors had believed the parties would arrange a deal that would address such security concerns, including a divestiture of 3Com's Tipping Point unit, which specializes in protecting networks from outside infiltration.
"I think everyone had agreed Tipping Point would be sold. I didn't understand what the issue would be with Huawei participating in the rest of the deal," said Manuel Recarey, an analyst at Kaufman Bros.
Shares of 3Com closed down 10.8 percent to $1.98 on Nasdaq, adding to a 22 percent fall the previous day after 3Com said it failed to reach a new agreement with Bain. At one point on Wednesday, the shares fell as low as $1.76.
The companies had said last month they were still in merger talks after they had withdrawn their application for approval of the deal after failing to reach an agreement with CFIUS.
Huawei had maintained that it is a private company owned by employees, but founder Ren Zhengfei was a former People's Liberation Army soldier.
Huawei was not immediately available for comment. (Reporting by Ritsuko Ando, Sinead Carew and Bill Berkrot, editing by Tim Dobbyn and Carol Bishopric)
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