3Com’s China-backed buyout deal is scrapped

Mar.20, 2008 in Market Outlook, Mergers and Acquisitions

3Com’s China-backed buyout is scrapped

Bain Capital kills deal under pressure from U.S. regulators

By Dan Gallagher, MarketWatch

Last Update: 2:27 PM ET Mar 20, 2008

SAN FRANCISCO (MarketWatch) — Under U.S. government pressure, a private equity
firm has abandoned its $2.2 billion Chinese-backed plan to acquire
communications-equipment maker 3Com Corp., the firm said Thursday.

Shares of 3Com dropped 11% to $1.97 immediately after the announcement by
Boston-based Bain Capital Partners LLC. The stock began to slide below the deal
price last month amid the first reports of government opposition to the deal.

In a written statement, Bain said it was informed by an affiliate that it has
decided to terminate the deal after learning that an inter-agency government
committee planned to block the transaction.

As part of the deal, Huawei Technologies — the largest network equipment maker
in China — would have taken a minority stake in 3Com (COMS).

That drew opposition from U.S. lawmakers, who were concerned that Huawei’s ties
to the Chinese army could constitute a threat to U.S. national security, given
that 3Com does substantial business with the U.S. government. See full story.
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The companies apparently had discussions on alternative ways to close the deal,
but failed to reach an agreement.

“Bain Capital made several alternative proposals to 3Com that we believe could
have satisfied the concerns raised” by the Committee on Foreign Investment in the
United States, Bain said in its statement. “We regret that we were unable to
agree upon an alternative transaction.”

The companies announced their merger plan in September. Under the terms, Bain
proposed to acquire 3Com for about $5.30 a share, or $2.2 billion — which
represented a 44% premium over the company’s previous market value. See full
story.
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