Monday, 13 October 2008
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| Thursday, 21 February 2008 | |
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Influential US committee’s obstinate approach thwarts proposed takeover of 3Com that involves… gasp!… China. Motherhood and apple pie reportedly safe, too. And one billion dollars of equity upside is flushed down the ideological toilet by the American crazies.
3Com, the ailing network equipment specialist, has seen its proposed US$2.2bn takeover by Bain Capital and Chinese networking giant Huawei crumble in the face of high-level “security concerns”. The Committee on Foreign Investment in the United States (CFIUS), an arm of the US Department of the Treasury, has reportedly raised sufficient objections to the deal to render it unworkable in its current form. 3Com? Ailing? Well, look at the numbers. 3Com’s stock peaked at more than US$100 per share during the technology surge in 2000, traded above US$9 as recently as early 2004, and fell to US$2.87 on yesterday’s news that the deal was off. That values 3Com at US$1.15bn; when the Bain/Huawei plan was made public last September, the company’s market cap went above US$2bn. "We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction", said Edgar Masri, President and CEO of 3Com Corporation. "While we work closely with Bain Capital Partners and Huawei to construct alternatives that would address CFIUS' concerns, we will continue to execute our strategy to build a global networking leader." Say what? Unsurprisingly, China is not too impressed by this arbitrary and paranoid interpretation of the ‘free market’ by the US authorities. Its Foreign Office has called for the US “to create a fair and favourable environment for Chinese companies in the United States.” There is some rich irony at work here. The Chinese have tolerated US investment in their technology sector (think Baidu or Alibaba) provided that the inward investors play by China’s own quite paranoid rules of censorship. The only US rule appears to be that Chinese ownership of US industrial assets is not wanted because, for reasons found only inside the brains of US policy wonks, the Chinese can’t be trusted. Even by the insular and isolationist standards of our American pals, this is astounding. The world’s fastest-growing economy, soon to become its largest and relegate the US to second or (thanks to India) third place, is such a pariah that America refuses to ‘treat’ with it. The gerontocracy that shapes America’s worldview has shown signs of becoming myopic – if, indeed, it could ever see at all. The United States is not the only economy or society to be bypassed by the reality of globalisation. The 2005 sale of IBM’s PC-manufacturing arm to Lenovo of China was treated in a bipolar fashion: an irrelevant PC maker sold to some gullible pups on the one hand; a new and profitable (and Chinese-owned) force in the PC market, as it turns out, on the other. Biter bit Nor is the subject of our concern here, 3Com, immune from this. In 2006 it acquired 100% ownership of H3C – its JV with Huawei, now the thorn in the side of the bigots at CFIUS. At the time, the JV said “H3C's mission, vision and strategy will remain unchanged after the transaction. H3C will strictly keep commitments in service and support to the partners and customers. The company will continue to consolidate its strength in IP area to provide comprehensive products and solutions to the customers. H3C hopes to keep continual cooperation with the partners to achieve win-win situation.” Well, guess what? The 2006 deal was but a prelude to what now might be called a reverse takeover of 3Com by Huawei. Giant eats pygmy. There are signs aplenty of this move’s pre-destiny. "As business becomes ever more global, companies need to enhance their technology infrastructure to compete more effectively in the broader economy," said Jonathan Zhu, a Bain Capital Managing Director, based in Hong Kong, in 2007. "3Com has a strong competitive position, and we believe there are significant opportunities to grow by acquiring customers and introducing new products. We look forward to working with the management team and the company's strategic partners to seize the worldwide growth opportunity that exists for 3Com's communications networking solutions." The cast of characters involved here can quickly become even more entertaining. One co-founder of Boston-based Bain Capital was Mitt Romney; whatever happened to him? Probably ran off to join the circus or try to become President of the USA or somesuch. Behind bars The problem that the US trade protectionists face is that they can no longer stop the tide. Nor is there any reason that they should attempt to do that. But 3Com’s own leaders don’t help, by playing down the Chinese involvement. When the deal was first proposed, Masri said “the 3Com Board of Directors and senior management team have thoroughly reviewed our strategic alternatives and have determined that the agreement with Bain Capital provides the best value for 3Com shareholders." Look, Huawei wants to buy and rescue 3Com. America (and CFIUS): get over it. Jim Chalmers |
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