Bain, Huawei Fail in Their Bid to Buy 3Com

Bain Capital Partner and China's Huawei Technologies failed in their $2.2 billion bid to buy 3Com Corp with because of growing costs and complexities in acquisition, said Huawei while making its first public comments after the deal was wrecked due to U.S. national security concerns.

The deal announced first In September last year but was considered unlikely to pass at the Committee on Foreign Investment in the United States (CFIUS), a group involving 12 agencies, which reviews corporate deals with foreign buyers.

After being turned down by the CFIUS Huawei Technologies Co Ltd HWT.UL -- China's top telecom equipment maker -- and private equity firm Bain Capital withdrew their proposal to buy the network gear maker.

"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," stated Huawei on Saturday.

According to the deal, Bain had to buy 3Com at the agreed price and give Huawei a 16.5 percent minority stake, which could be further increased by up to an additional 5 percent.

The proposal did not call for an operational control of 3Com by China's top telecom equipment maker and neither would have granted it any access to sensitive U.S. technology. Formerly, 3Com had said Huawei would not be given operational control or the ability to make decisions for the firm.

Lawmakers in the U.S. however, complained the deal threatened national security due to Huawei's alleged ties to the Chinese military.

"It's not a huge blow (to Huawei). The U.S. may regret doing this," Duncan Clark, chairman of research house BDA said on Saturday. "Right now, the U.S. is still feeling the pain of the sub-prime issue-- they should look to attract investment, not to deter them. And 3Com may have difficulties finding new investors."

Shares of 3Com have dropped more than 24 percent since the deal was announced on Sept. 28, reflecting the insecurity of investors regarding the deal.

“We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,” said Edgar Masri, Chief Executive Officer of 3Com. “While we work closely with Bain Capital Partners and Huawei to construct alternatives that would address CFIUS’ concerns, we will continue to execute our strategy to build a global networking leader.”