3Com, Bain Deal Goes Bust


Bain Capital Partners on Thursday terminated its proposed $2.2 billion acquisition of networking equipment maker 3Com, saying merger talks between the parties had dissolved and that national and political security concerns stymied the deal.

3Com, however, said in a statement that it still plans to move forward with its shareholder meeting, set for Friday, to vote on the proposed merger and urged shareholders to vote in favor of the buyout plan. 3Com would not comment further.

According to Bain, a Boston-based investment firm, the Committee on Foreign Investment in the United States (CFIUS), was going to prohibit the deal, which would've given a 16 percent stake to Huawei Technologies, China's largest networking equipment maker.

"Bain Capital made several alternative proposals to 3Com that we believe could have satisfied the concerns raised by CFIUS," the firm said in a statement. "We regret that we were unable to agree upon an alternative transaction."

Late Last September, 3Com's Board of Directors unanimously approved a definitive merger agreement under which Marlborough, Mass.-based 3Com would be acquired by affiliates of Bain for roughly $2.2 billion cash, with minority ownership going to Huawei. Shortly after, the parties voluntarily submitted the proposed transaction to CFIUS, a government agency that monitors and reviews international mergers and can block deals if it feels national security may be at risk.

CFIUS was to examine Huawei's role in the merger. Huawei reportedly has ties to the communist government, while 3Com does business with the U.S. government and its TippingPoint network security arm sells into the U.S. Department of Defense, which could raise a red flag calling into question national security.

But last month, 3Com and Bain withdrew their filings with CFIUS, putting a snag in the proposed merger. VARs speculated that the filing was withdrawn out of fear of giving a Chinese vendor a stake in the U.S. and European markets, especially when network security is involved, and noted that 3Com had said it would divest its TippingPoint division in order to help the deal go through.

After the CFIUS filing was withdrawn, the groups said they would continue merger discussions, but earlier this week 3Com announced that no progress has been made. On Thursday, Bain said the deal was dead.

Glenn Conley, president and CEO of Metropark Communications, a St. Louis-based solution provider, said the death of the Bain deal comes at a time when he was looking for 3Com to rejuvenate and come under solid leadership.

"I'm looking for leadership and a good solid direction that makes sense," Conley said. "Over the past year, two years, three years, five years it's been one big slip and lacking a direction that makes sense. The Bain deal to us was a very good possibility to fix the things we thought were broken."

Conley said he's felt pressured to rush deals and make sales to satisfy quarterly numbers and the leadership of a private firm may have helped 3Com break out of that slump, presuming he said that "a privatized company clears the deck chairs."

Conley said he foresaw some key changes "if Bain or another private investment firm were to come in and take a long hard look" at 3Com, its lineup of products and the way the company is run. He said he hoped Bain could've turned things around and expects 3Com to continue to seek out suitors for a possible acquisition.

"We hoped for that, we cried for that," he said, adding that he thought the security concerns surrounding the merger were "silly" and likely an excuse by Bain to back out of the deal.

Despite the deal dying, 3Com on Thursday said it plans to go ahead with its shareholder meeting to discuss and vote on the merger. In a statement, 3Com said, "The company intends to convene the shareholders' meeting in order to fulfill its commitments under the merger agreement, which include holding a shareholders'' meeting, and to preserve its rights under the merger agreement, including its right to pursue a break-up fee under certain circumstances."

3Com's board of directors further urged shareholders to still vote in favor of the proposal and adopt the merger agreement.

Had the merger gone through under the existing agreement, 3Com shareholders would receive $5.30 in cash per share and 3Com would become a private company, wholly owned by affiliates of Bain Capital Partners, with Huawei being a commercial and strategic partner of 3Com.

"While we remain committed to exploring alternatives that would enable us to complete the merger transaction contemplated by our existing merger agreement, we also remain confident in our long-term prospects," said 3Com President and Chief Executive Officer, Edgar Masri, in a statement. "The company and our strategy, which attracted Bain Capital to 3Com in the first place, have not changed."