Bain axes $2.2bn 3Com buyout

Unable to negotiate a new deal that would allay US regulatory concerns over national security threats, Bain has called off its buyout of the data networking company.

Bain Capital has terminated its $2.2 billion (€1.4 billion) take-private of 3Com, citing an inability to agree a new deal satisfying US regulatory concerns over national security.

“Bain Capital made several alternative proposals to 3Com that we believe could have satisfied the concerns raised by” the Committee on Foreign Investment in the United States (CFIUS), Bain said. “We regret that we were unable to agree upon an alternative transaction.”

At issue was a minority stake to be sold to Chinese networking company Huawei Technologies, a commercial partner of 3Com that is led by a former officer in the People’s Liberation Army. Huawei has also been accused of accepting bribes related to mobile phone contracts in Iraq, engaging in industrial espionage against Cisco Systems, and constructing a telephone system for Afghanistan’s Taliban government, according to the Washington Times.

Because 3Com makes computer network intrusion-prevention equipment for the Pentagon and other US government agencies, some in the US government feared sensitive information could be compromised.

Bain, 3Com and Huawei had previously withdrawn a joint voluntary notice filed with the CFIUS after the regulator “made clear that it intended to take action to prohibit the proposed transaction”, Bain said.

Since the withdrawal, 3Com said it has been working with Bain and Huawei to come up with alternatives pleasing to the CFIUS, but have been unable to agree on a new deal that would be acceptable to both the regulator and 3Com’s board.

“While we remain committed to exploring alternatives that would enable us to complete the merger transaction contemplated by our existing merger agreement, we also remain confident in our long-term prospects” 3Com chief executive Edgar Masri said in a statement. “The company and our strategy, which attracted Bain Capital to 3Com in the first place, have not changed.”

Yesterday 3Com said it would go forward with its scheduled shareholder meeting on Friday, at which they planned to vote on the now-aborted deal as well as explore their rights to pursue a break-up fee.

A 3Com spokesman did not return a request for comment by press time.