WASHINGTON - The $2.2 billion offer for 3Com made by a private-equity group and Chinese telecommunications is no longer on the table, according to a person familiar with the matter.
"The deal is not going to proceed," this person, who not authorized to comment publicly and spoke on condition of anonymity, said Wednesday.
Shares of 3Com plunged by more than 20 percent.
Early Wednesday 3Com said in a press release that it was unable to satisfy the national security concerns of federal authorities reviewing the sale of the network-equipment maker to Bain Capital Partners LLC and China's Huawei Technologies Co., which has strong ties to the Chinese government.
Marlborough, Mass.-based 3Com in September agreed to an offer of $5.30 per share from Bain and Huawei. The deal set off alarms in Washington, where lawmakers and Bush administration officials have expressed concerns that sensitive military technology could be transferred to China through a 16.5 percent stake held by Huawei.
3Com withdrew its application to the Committee on Foreign Investment in the United States, but the company said it would continue discussing ways to structure the Bain-Huawei deal in a manner acceptable to the federal panel. CFIUS is a 12-agency group with the authority to recommend the White House block or alter terms of deals that involve national security.
"We have not terminated the agreement," 3Com spokesman John Vincenzo said in an interview. "We have taken it out of the CFIUS process."
But the person familiar with the matter who spoke on condition of anonymity said "another deal possibly could (be reached) but it's not going to be some small revision of that (original) deal. It would be a new and different transaction."
Under the CFIUS process, companies are allowed to voluntarily withdraw from the review and refile after changes are made to its original proposal, restarting the clock on the entire process.
"We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction," Edgar Masri, president and chief executive of 3Com, said Wednesday.
Bain last week offered the U.S. government several concessions to win approval of the pending transaction, including the divestment of 3Com's Tipping Point subsidiary, which makes network-security software, according to the person familiar with the deal.
Shares of 3Com soared from $3.22 a share to $5.11 apiece in the weeks following Boston-based Bain's offer. Since then they have fallen, trading Wednesday at $2.98 a decline of 75 cents.
"It's surprising that this hit a road block and it's unclear what the next steps are," said Paul Marquardt, a partner at Cleary Gottlieb Steen & Hamilton LLP in Washington, who has clients that are investors in 3Com.
In most transactions involving foreign-based investors, there are informal negotiations with CFIUS before it begins a 30-day review. CFIUS can decide to investigate for an additional 45 days and file a report to the president, who has 15 days to act on recommendations. The 45-day investigations are required for state-owned companies.
"As the companies move forward, CFIUS will continue to monitor and engage appropriately based on the circumstances," said Rob Saliterman, a Treasury Department spokesman.
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AP Business Writer Dan Caterinicchia in Washington contributed to this report.
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