Firms in proposed 3Com deal offer risk relief

Companies involved in the proposed merger of 3Com and a Chinese telecommunications company have offered to take steps to reduce the national security risks from the deal in seeking to win the Bush administration’s approval.

Bain Capital, the international investment firm leading the $2.2 billion bid by Huawei Technologies to buy 3Com, announced yesterday it has offered “mitigation proposals” to the Treasury Department-led Committee on Foreign Investment in the United States (CFIUS) as part of its ongoing dialogue on the merger.

Disclosure of the risk-reduction offer followed the arrest Monday of four persons on Chinese espionage-related charges, including a Pentagon official accused of passing high-technology military command and control systems to the Chinese.

“As part of that dialogue, we have put on the table robust mitigation proposals that offer significant structural and security safeguards to American national security interests,” Bain Capital said last night. “At this sensitive time for the U.S. and global economies, we think it is critical that responsible cross-border investments like the 3Com transaction be permitted to move forward on sound economic terms, while fully protecting American national security.”

Bain Capital spokesman Alex Stanton declined to comment on the details of the proposals.

A person close to the deal said 3Com is proposing to sell its TippingPoint division that makes high-technology computer intrusion prevention equipment. “That is one division that does have advanced technology,” the source said.

TippingPoint has sold computer attack prevention systems to the Pentagon and other U.S. government agencies and is a reason the 3Com sale to Huawei has raised concerns among U.S. intelligence officials who say China could learn important vulnerabilities of U.S. networks.

Chinese military hackers have engaged in widespread computer attacks on Pentagon, U.S. government and private sector networks over the past several months, as part of what officials think is a systematic effort to prepare for electronic warfare during any future conflict.

A U.S. intelligence assessment of the 3Com deal determined that the merger without restrictions would undermine U.S. national security, administration officials said. The CFIUS is in a second phase, 45-day review of the merger.

Bain Capital said one of CFIUS’ missions is to protect U.S. national security. The investment firm has said the deal will not jeopardize national security.