WASHINGTON – The board of 3Com Corp. Friday scheduled a shareholder vote on a $2.2 billion buyout by a consortium that includes a Chinese company, signaling confidence the deal can clear antitrust and national security reviews.
In a filing with the U.S. Securities and Exchange Commission, the Marlborough, Mass.-based network equipment maker said shareholders are set to meet at 8 a.m. on Feb. 29 to vote on a proposed buyout by private equity firm Bain Capital Partners and China’s Huawei Technologies.
Some attorneys familiar with the national security review said the deal continues to face significant resistance at some federal agencies because of Huawei’s role.
Boston-based Bain Capital has said it is working to close the deal before the first quarter ends March 31 even though it has yet to get the government’s OK. The concern is whether sensitive military technology could be transferred to China via the minority stake held by Huawei, a Chinese telecommunications company.
In late September, Bain requested a national security review with the Committee on Foreign Investment in the United States, a 12-agency group with the authority to recommend the White House block or alter terms of deals that involve national security.
Acquirers often request national security views if they believe issues might arise as a show of good faith to the government that they want to address any concerns.
Intelligence agencies and some officials at Defense Department don’t trust Huawei, said attorneys close to the process who requested anonymity because of the sensitive nature of the review. The mistrust stems from Huawei’s ties to China’s government, especially the military. The company’s founder is a former member of the China’s People’s Liberation Army.
Shenzen-based Huawei would hold 16.5 percent of the new company’s stock and have the power to appoint three of the 11 board members. Bain Capital, which was co-founded by former partner Mitt Romney, a Republican presidential candidate Mitt Romney as a partner, would own 83.5 percent of the shares and appoint the other eight members. Huawei would not hold management roles, a 3Com filing to the SEC said.
“The parties are working closely with CFIUS to provide U.S. officials with information about the transaction,” 3Com said in its latest SEC filing.
In most transactions involving foreign-based investors, there are informal negotiations with CFIUS before it begins a 30-day review. CFIUS can decide to investigate for an additional 45 days and file a report to the President, who has 15 days to act on recommendations. Such 45-day investigations are required for state-owned companies.
A spokesman for Sen. Jon Kyl, R-Ariz. said Wednesday that CFIUS has extended its review into the additional 45-day period. In an October letter to the committee, Kyl, who has been critical of the deal, urged CFIUS to closely scrutinize the terms of the deal.
The CFIUS process is highly secretive and attorneys familiar with the process say it’s risky and challenging to predict outcomes.
One possibility is the company agreeing to divest a business unit known as TippingPoint, that develops network security software, or some other requested divestitures to gain CFIUS approval, some lawyers said.
Kyl isn’t the only federal lawmaker to express concern. Sen. Chris Dodd, D-Conn., said Wednesday the transaction “could be” a test of how the Bush administration implements reforms to the CFIUS process that were included in legislation approved last year.
Reps. Ileana Ros-Lehtinen, R-Fla., Thaddeus McCotter R-Mich., and several other members of Congress co-sponsored a resolution last fall that said the deal “threatens the national security of the United States” and called on CFIUS to block it.
The SEC filing on Friday also disclosed that 3Com’s board unanimously voted to approve the buyout.
If approved, shareholders would receive $5.30 in cash for each share of 3Com stock. Shares spiked to just under $5 in early October after the deal was announced before a broad stock market decline and worries the deal won’t be approved pushed the stock down to a bit over $4 a share in recent trading.
Shares of 3Com rose 9 cents, on 2.2 percent, to $4.16 in midday trading, a 13 percent premium to the stock’s closing of $3.68 on Sept. 27.
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AP Business Writer Christopher S. Rugaber in Washington contributed to this report.
