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3Com deal back on track after Bain agrees concessions

Reaching the TippingPoint

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3Com stock rose on Wednesday after private equity firm Bain Capital said it was prepared to make concessions to US legislators over its proposed buyout of the networking equipment firm.

Bain, alongside minority partner Huawei Technologies, the Chinese networking equipment manufacturer, offered to buy 3Com for $2.2bn in cash in September 2007.

3Com's TippingPoint division sells intrusion prevention technology to the US government, among others. But the prospect of a Chinese firm getting access to key anti-hacker technology spooked a US House committee investigating the deal, raising fears of the deal being delayed, or even scuppered.

The concerns were fueled by the fact that Huawei was founded by Ren Zhengfei, a former Chinese PLA army officer. Under the original terms of the deal, Huawei would secure a 16.5 per cent stake in 3Com, while Bain retained the rest.

Huawei has dismissed these concerns as "bullshit", pointing out that no objections were raised when 3Com and Huawei got into bed in a 50-50 joint venture.

Bain, however, has signaled a willingness to make concessions, Bloomberg reports

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

These concessions weren't specified, but may involve the possible spin-off of TippingPoint, Reuters reports.

3Com's stock gained 37 cents or 9.7 per cent, to close at $4.18 on Wednesday on the Nasdaq.

This isn't the first deal involving the information security market to hit the skids over US national security concerns.

Israel-based Check Point dropped its $225m planned purchase of intrusion prevention firm Sourcefire in March 2006 after objections from the FBI and Pentagon were heard by the Treasury's Committee on Foreign Investments.

FBI and Pentagon officials took exception to letting foreigners acquire sensitive technology used to protect them from hacker attack. Check Point later bought less prominent intrusion prevention firm NFR Security for about $20m in December 2006.®

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