Bain ends 3Com deal, cites concern over Chinese partner

Bain Capital Partners broke off a deal with China’s Huawei Technologies Co. to buy U.S. network equipment maker 3Com Corp. because of opposition by a U.S. security panel, sending 3Com shares down 11%.

Bain said Thursday that the Committee on Foreign Investment in the United States had said it would block the $2.2-billion deal that would also have given Huawei, China’s biggest network equipment maker, a minority stake of as much as 21.5% in 3Com.

Several U.S. lawmakers have complained that the deal threatened national security because of Huawei’s alleged ties to the Chinese military. 3Com sells security technology and network equipment to government agencies and large businesses.

Many investors had believed the parties would arrange a deal that would address such security concerns, including a divestiture of 3Com’s Tipping Point unit, which specializes in protecting networks from outside infiltration.

“I think everyone had agreed Tipping Point would be sold. I didn’t understand what the issue would be with Huawei participating in the rest of the deal,” said Manuel Recarey, an analyst at Kaufman Bros.

Shares of 3Com fell 24 cents to $1.98, adding to a 22% fall the previous day after 3Com said it had failed to reach a new agreement with Bain.

The companies said last month that they were still in talks after they had withdrawn their application for approval of the deal after failing to reach an agreement with the Committee on Foreign Investment.

Huawei had maintained that it was a private company owned by employees, but founder Ren Zhengfei is a former People’s Liberation Army soldier.

Huawei and 3Com representatives were not immediately available for comment.