3Com still seeking Huawei deal

3Com, Bain and Huawei have not yet reached an acquisition deal that would meet U.S. security concerns.

3Com and its partners in a proposed acquisition haven't yet reached a deal that they believe would ease U.S. government concerns about national security.

The networking vendor, which makes some intrusion-detection products used by the U.S. government, agreed last September to be acquired by Bain Capital, a Boston-based investment company, and Huawei Technologies, a networking vendor owned in part by the Chinese government. The Committee on Foreign Investment in the United States (CFIUS) rejected that plan, the companies announced in late February.

At that point, 3Com said it would work with Bain and Huawei to come up with a deal that would pass muster.

"To date, the parties have been unable to agree upon an alternative transaction that addresses CFIUS's concerns and is acceptable to 3Com's Board of Directors," 3Com said in a statement on Wednesday. The company remains committed to looking for ways to close the proposed US$2.2 billion deal, but also confident in its own long-term prospects, President and CEO Edgar Masri said in a statement.

The disclosure came as 3Com said it would go forward with a scheduled shareholder vote on the deal Friday in order to meet its commitments under the existing merger agreement. The 3Com board of directors still recommends that shareholders vote in favor of the merger.

Although Bain would hold 83.5 percent of 3Com under the deal, with Huawei controlling just 16.5 percent, the proposal raised concerns about foreign control of sensitive security technologies. 3Com is a relatively small player in networking and has long sought angles to compete against the dominant Cisco Systems. In 2003, it formed a joint venture with Huawei to make enterprise networking gear for worldwide sale and to gain a foothold in the Chinese market. In 2006, it bought out Huawei's 49 percent stake in that venture.

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Stephen Lawson

IDG News Service
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