By Staff Reports

3Com Corp. (COMS) is suing Bain Capital Partners LLC over a $66 million termination fee that resulted when the private equity firm and Huawei Technologies Co. backed away from an attempted takeover. 

In September 2007, China’s No. 1 network-equipment maker and Bain Capital launched a $2.2 billion takeover bid for 3Com. The deal stipulated that Huawei would receive a 16% stake in 3Com, leaving the rest to Bain. However, complications arose when the U.S. government expressed reservation about the deal and the possible breach of national security.

The fact that Shenzhen-based Huawei was founded by Ren Zhengfei, a former officer in the Chinese army, raised suspicion about the company’s intentions for 3Com, which has its own ties to the Pentagon.

3Com’s Tipping Point unit makes security software for the U.S. government, and policymakers worry that 3Com’s networking technology would allow China to eavesdrop on U.S. domestic conversations. Another concern was that the company’s encryption technology would make Chinese networks harder to tap.

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Bain broke off a deal with China's Huawei Technologies in March when it became apparent that their application to the Committee on Foreign Investment would not be approved. Now, 3Com is suing for a $66 million breakup fee.

“3Com now seeks the benefit of the bargain that was struck, and to require Bain Capital's Newco to live up to its commitments in the merger agreement by paying the termination fee,” lawyers for Marlborough-based 3Com said in a statement.

News and Related Story Links:

• Money Morning News:
  China’s Involvement Helps Derail 3Com Takeover on National Security Concerns

• Money Morning:
  U.S. Officials Question Whether 3Com Deal Gives Defense Secrets To China.

• Money Morning:
  Huawei Breaks Silence on Busted 3Com Deal