Security concern sinks 3Com deal
Chinese company would have gained 16 percent stake
Bain Capital of Boston has given up on a deal to take networking company 3Com Corp. private, after failing to satisfy a federal agency that the transaction wouldn't harm national security.
The deal, announced last September, would have given a 16 percent stake in the company to Huawei Technologies, a Chinese company with which 3Com had previously established a successful joint venture company. Shareholders would have received $5.30 cash per share for their 3Com stock, making the transaction worth $2.2 billion.
Abner Germanow, director of enterprise networks research at IDC Corp. in Framingham, was taken aback by the collapse of the deal. "To me the national security concerns were overblown," Germanow said.
He said that the failure would pose problems for 3Com, which has achieved considerable success in China even as its fortunes have waned in the United States.
"The Chinese market has been one of the few bright spots for 3Com," Germanow said. "Having Huawei as a key partner in that endeavor certainly would have helped."
Germanow said that there's little likelihood that some other networking firm would be interested in buying 3Com, and said that the company's best bet for future growth would be a renewed focus on selling its gear to small businesses.
Huawei was founded by a former director of telecommunications research for China's People's Liberation Army, and maintains close ties to the Chinese military. Marlborough-based 3Com, through its TippingPoint business unit, provides computer network security gear to many US government agencies. Critics of the deal worried that Huawei would share information about TippingPoint technology with the Chinese government, which could use it to subvert US government data networks.
In October, Bain, 3Com, and Huawei asked the Committee on Foreign Investment in the United States to approve the transaction. CFIUS is authorized by Congress to block foreign investments in US firms if the investments could raise national security risks.
CFIUS informed the companies that it would not approve the deal as originally structured. Last month Bain, 3Com, and Huawei withdrew their petition.
Hiawatha Bray can be reached at bray@globe.com.
