Bain Offers Concessions on 3Com Deal While Huawei Fumes

The US government’s Committee on Foreign Investment in the United States (CFIUS) had been sending strong signals that it would reject Bain Capital’s proposed $2.2-billion acquisition of 3Com on grounds of national security.

The reason: A minority stake in 3Com that Huawei Technologies — a Chinese telecommunications-equipment vendor with longstanding ties to China’s military and government  — would acquire as part of the transaction. You see, 3Com and its TippingPoint intrusion-prevention business unit do extensive business with the Pentagon and other US government agencies. The thought of the Chinese government having access to such technologies, and perhaps also gaining back-door access to the sites where they are installed, was too much CFIUS to countenance.

As  result, Bain Capital, no stranger to the corridors of political power in Washington, had to think fast about how it might salvage the deal. Apparently Bain has come up with a few ideas. The upward trajectory to 3Com’s stock price today indicates that the market believes Bain’s ideas were good ones, good enough to warrant CFIUS’s blessing.

Bain’s key concession to CFIUS seems to be an offer to divest TippingPoint, perhaps spinning it off as a separate entity in a future IPO, as had been planned by 3Com before Bain and Huawei came calling. That might be enough to get the deal approved.

In a statement, Bain said:

"We have put on the table robust mitigation proposals that offer significant structural and security safeguards to American national security interests. . . . "

Perhaps so, but Huawei is enraged that any concessions or "mitigation proposals" were necessary. What’s more, Huawei has delivered its message not in the decorous and reserved language of PR platitudes or in the coded, subdued tones of legalese. Oh, no, Huawei is pissed, and it isn’t shy about saying so.

In an interview with the Financial Times, Xu Zhijun, chief marketing officer at Huawei Technologies, said the concerns expressed about the deal by some US lawmakers were “bullshit."

After that burst of pithy eloquence, he said the following:

“If the US government is concerned about Huawei, if some of the lawmakers are concerned about Huawei, Cisco is everywhere within China. Who should be more concerned?”

I am not sure what he’s trying to say here. Either he’s saying that Huawei is just like Cisco, another large corporate vendor of networking gear that is guiltlessly providing enterprise and carrier customers with the gear they need; or he’s saying that Cisco is up to no good in China. Either way, I’m not sure the comparison is entirely apt, unless John Chambers and his boys have closer ties to the White House and the US intelligence agencies than I realized.

Maybe the interviewer should have prodded Mr. Xu to elaborate.

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