A secretive government agency is expanding its investigation of buyout shop Bain Capital LLC and Huawei Technologies Co. Ltd.'s $2.2 billion acquisition of 3Com Corp., a deal that has several lawmakers and some regulators on Capitol Hill in a tizzy over Huawei's relationship with China's military and government.
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At issue is Huawei Technologies participation in the deal. The Shenzehn, China-based telecommunications equipment maker will own 16.5% of 3Com after the deal is completed. Huawei's connection to the Chinese government -- Huawei's founder, Ren Zhengfei, is a former officer in the People's Republic of China army -- prompted concerns and led partner Bain Capital to submit Oct. 4 its merger for review to the Committee on Foreign Investment in the United States, an intergovernmental agency that considers deals for their impact on national security.
The panel of officials from federal agencies, including the departments of Commerce, Defense, Justice, State and Treasury, studies foreign-U.S. deals for national security purposes. Typically, CFIUS conducts a 30-day review that may be followed up by a 45-day investigation only when serious security concerns are raised or when foreign state-owned companies are invovled. CFIUS observers expected the transaction to undergo the formal 45-day review, but the lengthy period of time since the application was initially submitted indicates to at least one CFIUS observer that the deal may be in trouble. One CFIUS observer noted that the formal 45-day investigation began in December.
Also, The Washington Times reported in November that the Office of the Director of National Intelligence submitted a threat assessment to CFIUS describing the deal as posing a "threat" to U.S. national security interests. A new CFIUS law requires the DNI to provide advice to CFIUS agency members in coordination with other intelligence agencies, such as the Defense Intelligence Agency.
A group of lawmakers have introduced H.R. 730, a bill that would block the deal based on concerns about Zhengfei's army service and involvement in the Communist Party. The bill also references a number of U.S and foreign articles expressing concern about the Shenzhen-based company and possible links to Chinese government intelligence and military establishments. - Ron Orol
See story from the Financial Times
See story from BloggingStocks
See profile of Ren Zhengfei from Time
See TheDeal.com: Chinese stake in 3Com deal attacked
See TheDeal.com: Bain, Huawei take 3Com
