3Com seeks US$66M divorce money over failed merger

Networking vendor 3Com will chase private equity firm Bain Capital Partners for a US$66 million merger break-up fee after its proposed suitor pulled the plug on their merger deal late last week citing regulatory concerns.

3Com was set to be sold to Bain Capital Partners, with a 16 percent minority stake being sold to Chinese networking vendor Huawei Technologies, under a US$2.2 billion agreement signed in October 2007.

Bain Capital pulled out of the deal late last week, concerned that the U.S. government's Committee on Foreign Investment in the United States (CFIUS) was intent on scuttling the deal citing national security concerns.

The merger has been under question by U.S. regulators due to Huawei's ties to the Chinese government and 3Com's base of U.S. government customers. 3Com's network security subsidiary, TippingPoint, for example, counts the U.S. Department of Defence as one of its customers.

Several times in the last six months the merger deal stalled as Bain and 3Com adjusted the agreement in an attempt to meet the regulator's approvals. At one stage, the duo even included a proposal to divest TippingPoint as part of the transaction.

Bain claims it pursued all avenues to see the merger go ahead, but felt it could not get the agreement approved by CFIUS.

3Com responded with a statement saying that it "does not believe that Bain Capital Partners' attempt to terminate its merger agreement with 3Com is valid".

"3Com believes that the reasons cited in Bain Capital's press release are not grounds for termination of the agreement," the company said.

The networking vendor's shareholders voted to approve the now-defunct deal in a meeting last Friday in the hope of salvaging the US$66 million termination fee from Bain.