3Com's China-Backed Buyout Plan Scrapped

MoneyNews
Thursday, March 20, 2008

NEW YORK -- Bain Capital Partners said Thursday it is ending its agreement with China's biggest network equipment maker to buy U.S. company 3Com Corp, citing plans by a U.S. security panel to block the deal.

Shares of 3Com, which would have surrendered a minority ownership to China's Huawei Technologies Co Ltd under the terms of the deal, fell as much as 20.7 percent a day after 3Com said it had failed to reach a new agreement with Bain.

Bain said it was informed that the U.S. Government's Committee on Foreign Investment in the United States would take action to prohibit the $2.2 billion deal.

The companies said last month they were still in merger talks after they had withdrawn their application for approval of the deal after failing to reach an agreement with CFIUS, which reviews U.S. acquisitions involving foreign buyers.

Bain, 3Com and Huawei had voluntarily given joint notice to the security panel, led by the U.S. Treasury Secretary, in connection with the proposed deal.

3Com , which sells security technology as well as network equipment, had planned to sell a minority stake of up to 21.5 percent to Huawei, which would not have had control of 3Com or access to sensitive U.S. technology under the deal terms.

But several U.S. lawmakers had complained that the deal threatened national security due to Huawei's alleged ties to the Chinese military.

Huawei maintains that it is a private company owned by employees, but founder Ren Zhengfei was a former People's Liberation Army soldier.

Shares in 3Com , which would have become a privately held company after the deal, were down 21 cents or 9.5 percent at $2.01 in afternoon trade on Nasdaq. Earlier, they fell as low as $1.76.

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