Lawyer: Bain should pay fee to 3Com

WILMINGTON, Del. - Bain Capital LLC should be ordered to pay a $66 million breakup fee over a buyout bid for 3Com Corp. that was dropped because of US government opposition, a lawyer said.

Bain's Diamond II Holdings Inc., set up to make the $2.2 billion purchase of computer equipment maker 3Com, violated an agreement by abandoning the deal, Boris Feldman, one of 3Com's lawyers, told a Delaware judge yesterday. In March, Bain and Huawei Technologies Co. of China withdrew their bid after failing to allay US government security concerns about the combination.

Bain executives "welshed on the deal, walked away and stiffed the other side," Feldman said. That triggered the private equity firm's responsibility to pay 3Com the termination fee, he said. The Boston private equity firm owns companies including Clear Channel Communications Inc.

In February 2008, Bain and Huawei Technologies withdrew a request that the Committee on Foreign Investment in the United States approve the buyout. That group reviews national security issues arising from foreign investments in US companies. Marlborough, Mass.-based 3Com makes computer networking equipment.

The move came after the government panel raised questions about 3Com's TippingPoint unit, which sells security software used by US government agencies. Federal officials said they were concerned the Chinese government would gain access to 3Com's antihacking technology used by the Defense Department.

3Com shareholders approved the takeover on March 21, a day after Bain officially walked away from it, according to filings in Delaware Chancery Court. Gaining shareholder approval for the acquisition was necessary to collect the termination fee, 3Com officials said at the time.

Bain contends 3Com officials agreed to pull the request for government approval of the deal and waived their rights to collect the $66 million, John Villa, one of the company's lawyers, told Chancery Court Judge John Noble. 3Com officials didn't consent to Bain's decision to pull the request in exchange for the fee, Villa said in a hearing in Wilmington.