Huawei Breaks Silence on Busted 3Com Deal

By Jason Simpkins
Associate Editor

Huawei Technologies Co. acknowledged for the first time yesterday (Monday) that a takeover of Marlborough, Massachusetts-based 3Com Corp. (COMS) would not likely proceed.

“Due to the complexity of the acquisition process, the increase in acquisition costs, and the significant change in stock market conditions since last year, Bain Capital and Huawei have announced their intention to withdraw their application relating to the proposed acquisition,” Huawei said in a statement.

According to the terms of the deal reached between all three parties involved, Huawei would receive a 16% stake in 3Com, and leave the rest to Bain Capital Partners LLC.  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. The concerns about the national security issues were chronicled in a Money Morning analysis last year.

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.

3Com announced last week it would withdraw its application to the U.S. Committee on Foreign Investment, a 12-agency group with the authority to recommend the executive branch block or reconfigure deals threatening national security.

“3Com empathizes with the decision of Bain Capital and Huawei, and has taken contemporaneous steps to withdraw its application relating to the transaction,” Huawei said in its statement. “Huawei and 3Com will continue to maintain their friendly cooperation and comply with the existing agreements between the parties.”

News and Related Story Links:

  • The Associated Press:
    Bain-Huawei Offer for 3Com on the Rocks