Deal to buy 3Com falls apart

Bain Capital Partners and Huawei have dropped their bid to buy 3Com because the Committee on Foreign Investment in the U.S. intended to prohibit the sale

Bain Capital Partners and China's Huawei Technologies have abandoned their bid to buy U.S. networking firm 3Com because of security concerns by the U.S. government, Bain said.

The companies said last month that the proposed purchase of 3Com was on hold because of security concerns at the U.S. Committee on Foreign Investment in the United States (CFIUS), but they announced Thursday that the deal was terminated because CFIUS intended to take action to prohibit the sale, Bain said in a press release.

Bain, based in Boston, would have controlled an 83.5 percent stake in 3Com, with China's Huawei getting the remainder. But some critics, including U.S. Representative Thaddeus McCotter, a Michigan Republican, had raised concerns that Huawei has strong ties to the Chinese government.

The U.S. Department of Defense uses 3Com intrusion detection products, and Chinese hackers have targeted the agency, McCotter said in an October speech.

Bain and Huawei announced in September that they intended to buy 3Com for $2.2 billion. They voluntarily filed a notice with CFIUS.

The companies have withdrawn their request for approval "because CFIUS made clear that it intended to take action to prohibit the proposed transaction," Bain said in a press release.

A CFIUS representative didn't immediately respond to a request for comments.

Bain made several alternative proposals to 3Com that it believed "could have satisfied the concerns raised by CFIUS,” Bain added in the press release. But the two sides were unable to come up with an agreement.

A 3Com spokesman wasn't immediately available to comment. As late as Wednesday, 3Com had announced that it intended to proceed with a shareholder meeting, scheduled for Friday, in which shareholders would decide whether to accept the Bain offer.

Copyright © 2008 IDG Communications, Inc.

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