WASHINGTON (AP) - Bain Capital Partners LLC said national security concerns
ultimately stood in the way of its offer with a Chinese partner to buy
network-equipment maker 3Com Corp.
The Boston-based private-equity firm said it had offered 3Com several ways
the $2.2 billion deal could be restructured to satisfy the U.S. government, but
that no arrangement could be worked out.
Bain said it was notified that the Committee on Foreign Investment in the
United States intended to block the transaction.
"We regret that we were unable to agree upon an alternative transaction,"
Bain said in a statement.
Shares of 3Com, a Marlborough, Mass.-based company, plunged by nearly 11
percent.
3Com said late Thursday that it does not believe the reasons Bain cited are
valid grounds for termination of their agreement. The company said it will still
hold a shareholders meeting Friday to vote on the deal's approval, and it will
pursue the $66 million breakup fee payable under the merger agreement.
Since the deal was announced in September, the proposed acquisition
immediately set off alarms in Washington. Lawmakers and Bush administration
officials have expressed concerns that sensitive military technology could be
transferred to China through the 16.5 percent 3Com stake that would be held by
Huawei Technologies Co.
Rep. Ileana Ros-Lehtinen, R-Fla., who co-sponsored a resolution with
Thaddeus McCotter, R-Mich., and several members of Congress to get the
government to block the deal, has repeatedly said it would be a mistake to allow
Huawei, which has ties to the Chinese army, to have even a minority stake in
3Com.
A spokesman from the Treasury Department declined to comment.
Last month, Bain offered several concessions to CFIUS to win approval of the
deal, including the divestment of 3Com's Tipping Point subsidiary, which makes
network-security software. CFIUS is a 12-agency group with the authority to
recommend the White House block or alter terms of deals that involve national
security.
However, 3Com later withdrew its voluntary CFIUS application, after it was
unable to satisfy national security concerns of federal authorities reviewing
the sale. The company said it would continue to structure the Bain-Huawei deal
in a way acceptable to the federal panel.
"It appears the companies were unable to put together a mitigation package
acceptable to the government," said John Reynolds, a partner at Wiley Rein. "The
government was looking for a fundamentally different deal structure than the
parties put together. It remains unclear to an outsider what ultimately caused
the transaction to fall apart."
Shares of 3Com fell 24 cents, or 10.8 percent, to $1.98 Thursday.
___
AP Business Writer Mike Obel in New York contributed to this report.
tf.TFN-Europe_newsdesk@thomson.com
wj
COPYRIGHT
Copyright Thomson Financial News Limited 2008. All rights reserved.
The copying, republication or redistribution of Thomson Financial News Content,
including by framing or similar means, is expressly prohibited without the prior
written consent of Thomson Financial News.
|