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Bain’s offer for 3Com collapses

A proposed technology deal that had become the latest lightening rod for US mistrust of Chinese investment in sensitive US industries finally collapsed on Thursday after running into political opposition in Washington.

The plan, which would have given Chinese networking equipment company Huawei Technologies a 16.5 per cent stake and board representation at US rival 3Com, was called off a month after it became clear the US would block the transaction as originally structured. The deal fell foul of the Committee on Foreign Investment in the US, the interagency panel that vets foreign takeovers on security grounds.

Failure of the deal could exacerbate trade tensions between the two countries. Chinese officials had argued that the transaction should have been assessed purely on commercial grounds, and did not raise security issues.

Huawei, which declined to comment, had been acting as a minority investment partner alongside Boston-based private equity firm Bain Capital, which agreed last September to pay $2.2bn for all of 3Com. Alarm bells were set off in Washington by 3Com’s involvement in networking security software, a field in which it is a supplier to the US military.

On Thursday, Bain said it had abandoned the buy-out plan, after making what it claimed were “several alternative proposals to 3Com that we believe could have satisified concerns raised by CFIUS.”

The day before, 3Com revealed that the three sides involved had been unable to come up with an alternative that “addresses CFIUS’ concerns and is acceptable to 3Com’s board of directors.” The falling-out sets the stage for a fight over a break-up fee that Bain agreed to pay to 3Com, depending on the circumstances.

3Com’s proposed deal with Bain and Huawei was announced in September last year, when the wounds in Congress were still healing from the 2006 controversy over the sale of management rights to six US ports to Dubai Ports World.

The Dubai transaction was unwound because of congressional opposition, amid charges by many politicians that it posed a threat to national security. It also led to a tightening of the law governing CFIUS, and highlighted the extent to which companies proposing potentially sensitive deals needed to make more proactive efforts to lobby for them with members of Congress.

Late on Thursday, 3Com’s shares were changing hands for $1.98, some 30 per cent below the level at which they were trading before 3Com first hinted the day before at the failure of the deal. Last September, Bain had agreed to pay $5.30 a share in cash for the company.

Источник: Financial Times

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