Huawei & Bain Bail on $2.2B 3Com Deal

National security concerns finally derail Huawei's attempt to grab a piece of the 3Com pie

March 21, 2008

2 Min Read
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Bain Capital Partners has pulled the plug on its $2.2 billion acquisition of 3Com in the face of stiff U.S. government opposition.

Yesterday an affiliate of Bain told 3Com that it was taking the action because the U.S. government's Committee on Foreign Investment in the United States (CFIUS) said it intended to take action to stop the transaction.

Bain hinted that 3Com also played a part in the deal's collapse.

"Bain Capital made several alternative proposals to 3Com that we believe could have satisfied the concerns raised by CFIUS," the Boston-based investment firm said in a statement yesterday. "We regret that we were unable to agree on an alternative transaction."

3Com, which had announced plans earlier this week for a shareholder meeting to vote on the merger agreement, was unavailable for comment last night.Under the terms of the proposed deal, Chinese technology giant Huawei would have taken a 21.5 percent stake in the merged company, something which was apparently viewed as too much of a risk by lawmakers in Washington.

National security concerns were said to be behind the committee's decision to block the deal. Government reviewers homed in specifically on 3Com's links to the U.S. military following its $430 million acquisition of security specialist TippingPoint in 2004.

Many of 3Com's switches, routers, and security products are sold into U.S. government agencies, notably the Pentagon, as well as large enterprises, clearly contributing to the government's nervousness about this deal.

Even an offer by 3Com to divest its TippingPoint business unit was reportedly unable to sway the federal committee, underlining the scale of the opposition faced by the vendors.

Huawei's CEO and founder Ren Zhengfei is a former officer in China's People's Liberation Army, and the company is said to have strong links to its country's armed forces.The Chinese military, in turn, is rumored to support China's thriving hacker community.

Yesterday's announcement also highlights the current U.S. paranoia about the economic and technological threat posed by China.

This is not the first time that a major U.S./Chinese deal has become ensnared in Washington red tape.

In 2005, the Chinese National Offshore Oil Corporation's (CNOOC) 's $18.5 billion bid for American company Unocal also came under the scrutiny of CFIUS members, with the Chinese firm eventually withdrawing its bid. Unocal subsequently became part of Chevron .

CFIUS officials, who were involved in blocking Israeli security vendor Check Point's acquisition of Maryland-based Sourcefire in 2006, also hit the headlines when they vetoed the controversial U.A.E. ports deal in the same year.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.

  • Bain Capital

  • Check Point Software Technologies Ltd. (Nasdaq: CHKP)

  • Huawei Technologies Co. Ltd.

  • 3Com Corp. (Nasdaq: COMS)

  • TippingPoint Technologies Inc.

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