Chinese 3Com investment thwarted

A proposed Chinese investment in 3Com Corp. has been shot down, at least for now, by the interagency Committee on Foreign Investment in the United States, which refused to approve the deal.

While there is a slim chance the buyout could be revived with revised terms, that does not appear likely, and there also is worry about dampening other possible Chinese investments in U.S. firms, such as the one rumored with Motorola Corp.

On Thursday, 3Com, along with affiliates of Bain Capital Partners, LLC and Huawei Technologies, withdrew their joint filing to the committee, the companies announced.

"We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction," Edgar Masri, president of 3Com, said in a news release. The companies remain committed to continuing discussions, the release said.

In September 2007, 3Com agreed to be acquired by Bain Capital Partners for approximately $2.2 billion in cash. Huawei of Shenzen, China, was to take ownership of a 16.5 percent stake.

The proposal immediately stirred national security concerns in Congress. Members of both houses called for national security reviews, and eight members of the House introduced a resolution urging that the acquisition be blocked.

Analyst Jeremy Grant, senior vice president of Stanford Group, said today that despite the Bush administration's tough stance against the 3Com deal, the companies may move forward.

"There's still a chance that a Bain Capital-led purchase of 3Com, with minority participation by China's Huawei Technologies, can advance," Grant said. "But if certain government agencies are objecting in principle to any strategic role for Huawei, it may be impossible to devise a structure that satisfies all the parties' concerns."

At the same time, it is possible that time will lead to a more objective assessment of how to handle such transactions in the future, he added. "The administration's tough stance on 3Com could give it some political breathing space to deal objectively with future transactions, especially ones involving sovereign wealth funds," Grant said.

About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

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