Bain Accepts Security Review

WASHINGTON (AP) – Bain Capital on Wednesday said it will submit for a national security review its proposed $2.2 billion buyout of networking equipment maker 3Com Corp.

Government scrutiny was anticipated ever since the acquisition was announced Sept. 28 because of a minority stake in the deal held by Chinese telecommunications company Huawei Technologies, which has close ties to China's government.

Companies usually submit deals to the federal Committee on Foreign Investment in the United States voluntarily as a defensive measure. The government can unwind deals that weren't reviewed if federal agencies later determine they pose a threat to national security.

“The government has the ability to stop a deal,” said Craig King, an attorney at Arent Fox LLP. “So companies voluntarily submit to get assurances that the deal won't be stopped or unwound later.”

CFIUS, a 12-member group of key economic officials at the White House and several Cabinet-level officials, was created in 1988, but has been much more active following the September 11 terrorist attacks six years ago in investigating potential national security issues surrounding proposed deals involving foreign buyers.

Legal analysts say a key determinant of the government's view of the deal will be whether Huawei is a passive or active investor.

In a statement, Bain Capital, a Boston-based private equity firm, said “we believe the U.S. government review in this matter will conclude that the company will be firmly controlled by an American firm, have only a small minority foreign shareholders, and the deal presents no risks to national security.”

Bain was co-founded by former Massachusetts Gov. Mitt Romney, a Republican presidential candidate who retired as a partner in 1999. According to disclosure forms filed with the Federal Election Commission, Romney still receives modest annual income from Bain.

The pending transaction requires both shareholder and regulatory approval.