Bain Capital and Chinese Partner Drop Bid for 3Com
Bain Capital and its Chinese partner, Huawei Technologies, have abandoned a $2.2 billion bid for the technology company 3Com after failing to agree to new terms to satisfy U.S. government concerns over national security.The Committee on Foreign Investment in the United States, a special federal government panel, had planned to block the deal, which would have given Huawei Technologies a 16.5 percent stake in 3Com, Bain said Thursday.
Some U.S. lawmakers had objected to the bid because it would have given the Chinese access to 3Com's anti-hacking technology, which is used by the U.S. Defense Department.
The collapse of the proposed transaction leaves 3Com, which has not posted an annual profit since 2000, to fend for itself against Cisco Systems, which dominates the market for networking equipment.
3Com's stock has fallen about 60 percent since Bain announced the bid on Sept. 28, wiping out more than $1 billion in market value.
3Com, based in Massachusetts, dropped 24 cents, or 11 percent, to close at $1.98 in New York on Thursday. The shares declined 22 percent Wednesday after the company said it had not yet reached a revised accord with Bain, a Boston-based buyout company.
"Bain Capital made several alternative proposals to 3Com that we believe could have satisfied the concerns raised" by the committee, the company said. "We regret that we were unable to agree upon an alternative transaction."
Last month, Bain scrapped a request for U.S. government approval of the buyout.
3Com said Thursday that it did not believe that the reasons Bain cited were valid grounds for canceling their agreement.
The company said that it would still hold a shareholders' meeting Friday to vote on the deal's approval and that it would pursue the $66 million breakup fee payable under the acquisition agreement.
Analysts had said the companies might win approval for the deal if Bain sold TippingPoint, a 3Com unit that makes the fire walls used by the U.S. Defense Department to secure its computer networks.
3Com had planned to spin off the unit before agreeing to the offer from Bain and Huawei, which was founded in 1988 by a former Chinese Army officer, Ren Zhengfei.
Huawei has maintained that it is a private company owned by employees. It was not immediately available for comment.
When the deal was announced in September, it set off alarms in Washington. Lawmakers and the Bush administration officials have expressed concerns that sensitive military technology could be transferred to China.
Representative Ileana Ros-Lehtinen, a Florida Republican has repeatedly said it would be a mistake to allow Huawei to have even a minority stake in 3Com. Ros-Lehtinen has sponsored a resolution with Thaddeus McCotter, a Michigan Republican, and several other members of Congress to persuade the government to block the deal.
3Com was founded in 1979 by Robert Metcalfe, who invented the Ethernet technology that is now the standard for personal computer networks.
In 1987, the company merged with Bridge Communications, which was co-founded by Eric Benhamou, now 3Com's chairman.
The company sold shares to the public in 1984 and reached a peak market value of $25.8 billion in 2000, with the stock rising to a split-adjusted record of $21.89. 3Com shed its electronic organizer business, Palm, in 2000.
Originally published by Bloomberg, AP, Reuters.
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