Buyout shop Bain Capital LLC late Tuesday, Feb. 13, offered a number of concessions to address concerns raised amid a U.S. government review of its $2.2 billion acquisition of U.S. networking-equipment maker 3Com Corp.
At issue is the participation of Bain's minority partner, Huawei Technologies Co. Ltd., in the deal. Upon closing, Bain is expected to own 83.5% of 3Com, while Shenzhen, China-based Huawei would own the rest. Despite having only a minority stake, Huawei's connection to the Chinese government prompted concerns by some lawmakers as well as defense and intelligence officials.
"We have put on the table robust mitigation proposals that offer significant structural and security safeguards to American national security interests," Bain said late Tuesday. "At this sensitive time for the U.S. and global economies, we think it is critical that responsible cross-border investments like the 3Com transaction be permitted to move forward on sound economic terms, while fully protecting American national security."
Bain did not provide additional information but regulatory sources familiar with the deal speculate that it may be offering to divest 3Com's Tipping Point unit, which makes encryption and security software.
Complaints about the deal led the buyout shop on Oct. 4 to submit its acquisition of 3Com to an intergovernmental panel that reviews deals for their impact on national security. The panel, the Committee on Foreign Investment in the United States, is comprised of officials from several federal agencies, including the departments of Commerce, Defense, Justice, State and Treasury.
Raising some concerns in U.S. security circles is that 3Com and Huawei in 2003 formed a joint venture, H3C Technologies Co. Ltd., to manufacture Internet protocol-based routers and switches to meet growing demand in China. The deal transformed 3Com into a major player in the Chinese technology market. Last November, 3Com agreed to buy out Huawei's 49% stake in H3C for $882 million. The deal was completed in March, giving 3Com full ownership of H3C.
CFIUS officials may seek to have Bain wall off access to certain 3Com technologies from Huawei. 3Com may also be required to do its U.S. government contracting work through a special division set up with a board of directors made up of high-profile U.S. citizens with an expertise in security issues.
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