National security concerns nix sale of 3Com

Feb 20, 2008, 19:54 GMT

San Francisco - National security concerns have scuttled a deal to sell networking equipment maker 3Com Corp to Bain Capital Partners and China's Huawei Technologies, the companies said Wednesday.

Bain said it had withdrawn its request for national security approval for the 2.2-billion-dollar deal, which would have seen Huawei take a 16.5-per-cent minority stake in the company. To proceed, the deal needed approval by Committee on the Foreign Investment in the United States (CFIUS), an inter-agency government panel that reviews corporate acquisitions involving foreign buyers.

The main obstacle to the deal was concern about technology developed by 3Com's Tipping Point unit, which makes 'intrusion prevention' systems to protect networks at large businesses and government agencies. 3Com acquired Tipping Point in late 2004 for 430 million dollars.

Bain and 3Com had previously said Huawei would not have access to sensitive technology or have operational control of the company. Last week Bain even offered to spin off Tipping Point in a bid to save the deal.

However 3Com said despite the withdrawal of its request for national security approval, the company was still exploring alternative strategies.

'We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,' Edgar Masri, 3Com's chief executive said in a statement. 'While we work closely with Bain Capital Partners and Huawei to construct alternatives that would address CFIUS' concerns, we will continue to execute our strategy to build a global networking leader.'