WASHINGTON – Bain Capital Partners LLC on Thursday said national security concerns ultimately stood in the way of its offer, with a Chinese partner, to buy network-equipment maker 3Com Corp.
The Boston-based private-equity firm said it had offered 3Com several ways the $2.2 billion deal could be restructured to satisfy the U.S. government, but that no arrangement could be worked out.
Bain said it was notified that the Committee on Foreign Investment in the United States intended to block the transaction.
“We regret that we were unable to agree upon an alternative transaction,” Bain said in a statement.
Shares of 3Com, a Marlborough, Mass.-based company, plunged by nearly 11 percent.
Since the deal was announced in September, the proposed acquisition immediately set off alarms in Washington. Lawmakers and Bush administration officials have expressed concerns that sensitive military technology could be transferred to China through the 16.5 percent 3Com stake that would be held by Huawei Technologies Co.
Rep. Ileana Ros-Lehtinen, R-Fla., who co-sponsored a resolution with Thaddeus McCotter R-Mich., and several members of Congress to get the government to block the deal, has repeatedly said it would be a mistake to allow Huawei, which has ties to the Chinese army, to have even a minority stake in 3Com.
A representative from 3Com could not be reached immediately for comment. A spokesman from the Treasury Department declined to comment.
Last month, Bain offered several concessions to CFIUS to win approval of the deal, including the divestment of 3Com’s Tipping Point subsidiary, which makes network-security software. CFIUS is a 12-agency group with the authority to recommend the White House block or alter terms of deals that involve national security.
However, 3Com later withdrew its voluntary CFIUS application, after it was unable to satisfy national security concerns of federal authorities reviewing the sale. The company said it would continue to structure the Bain-Huawei deal in a way acceptable to the federal panel.
“It appears the companies were unable to put together a mitigation package acceptable to the government,” said John Reynolds, a partner at Wiley Rein. “The government was looking for a fundamentally different deal structure than the parties put together. It remains unclear to an outsider what ultimately caused the transaction to fall apart.”
Shares of 3Com fell 23 cents, or 10.8 percent, to $1.98 in afternoon trading.
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