China Tries To Buy 3COM Again Communication Military Company.

WASHINGTON (Dow Jones) -- Shares of 3Com Corp. rose as much as 25% in premarket trading Friday, gaining on news that the networker continues to work on securing the sale of the company to a U.S. investment firm and its Chinese partner.

Earlier this month, 3Com (COMS) and the two prospective buyers withdrew an application with a federal oversight panel that investigates mergers involving foreign companies. Concerns raised by the panel over Chinese participation have threatened the $2.2 billion deal.

Late Thursday, 3Com said it continues to negotiate with the two buyers, Bain Capital Partners LLC and Huawei Technologies Co., on ways to address concerns about national security. The three companies could soon refile a new application with the Committee on Foreign Investment in the United States, an arm of the Treasury Department.

As a result, Marlborough, Mass.-based 3Com said investors would not vote on the proposed sale at a shareholders meeting previously slated for Friday. The meeting would be convened and immediately adjourned without a vote.
The shareholders meeting has been rescheduled for March 7, 3Com said.

Shares of 3Com, which closed Thursday at $2.91, last traded at $3.52 ahead of the bell. The stock fell 23% on Feb. 20, when the company withdrew its initial application with CFIUS.
While the negotiations are ongoing, 3Com cautioned: "There can be no assurance that these discussions will not adversely affect the terms of the pending merger transaction, including valuation, or that these discussions will result in an alternative that adequately addresses CFIUS' concerns."

Under the renewed negotiations, the three companies were looking for ways to minimize the role of Huawei in parts of 3Com's business that serve the federal government.

Although it's a relatively small player in the networking market, 3Com sells anti-hacking and other network-security services to the Defense Department.

The U.S. has been particularly sensitive about foreign ownership of communications assets, especially in light of repeated attempts to hack the nation's defense systems. Chinese-based hackers are viewed as a major concern.

The little-known CFIUS, part of the Treasury Department, monitors the effects of cross-national mergers and can block deals if it believes the nation's security would be placed at risk. Only rarely has the agency taken that step, however.

Huawei is the largest networker in China and a company with links to the mainland's communist government. Huawei is run by a former mid-ranking officer in the Chinese army whose firm has raised the ire of the U.S. government and Western rivals such as Cisco Systems Inc.

Under the prior agreement Huawei would have gained a 16% stake in 3Com, with Bain Capital Partners owning a majority stake. Boston-based Bain was founded by former Republican presidential candidate Mitt Romney, though he's no longer involved with the firm.
Yet some politicians in both parties have raised public opposition to the deal and the pending presidential election looms as another potential obstacle. Some lawmakers believe Huawei has been working with its government to undermine Western interests.

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