Takeover doubts hit 3Com shares
Shares of 3Com Corp. fell Wednesday after its buyers failed to settle national security concerns with the U.S. government, putting the $2.2-billion deal in doubt.
Bain Capital and Chinese partner Huawei Technologies Co. withdrew their application to the Committee on Foreign Investment in the United States. The panel had expressed concerns about 3Com’s TippingPoint unit, whose security software is used by U.S. government agencies, falling into Chinese hands. A congressional committee is investigating the deal.
3Com must now weigh whether to separate TippingPoint, which brought in about 8.1% of the company’s sales last quarter, and renegotiate the transaction or stay independent as the economy cools and customers cut purchases.
“This is China and it’s a hot topic right now, and it will remain a hot topic as long as the administration complains openly about Chinese espionage,” said attorney Charles R. Johnston, chairman of the international transactions group at Baker, Donelson, Bearman, Caldwell & Berkowitz in Washington.
3Com, which also makes computer-networking devices, fell 86 cents, or 23%, to $2.87.
Under the original terms of the transaction, Huawei would get a 16.5% stake in 3Com, while Bain would own the rest.
“We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,” Edgar Masri, chief executive of Marlborough, Mass.-based 3Com, said in a statement. 3Com and the buyers will continue discussions.
3Com spokesman Kevin Flanagan didn’t return a call seeking further comment. Bain spokesman Alex Stanton declined to comment The government has “worked hard” to encourage international investment in U.S. companies while protecting national security, said Brookly McLaughlin, a spokeswoman for the Treasury Department, which chairs the committee. The 12-agency panel will monitor the companies “appropriately” as they move forward, she said.
If the deal falls through, it would add to the list of private-equity buyouts that have foundered amid fears of a recession and limited access to debt financing.
