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March 20, 2008 (5:35p) - Transaction
Terminated
The companies have announced the termination of
this transaction.
March 20, 2008 (10:10a) - Status Report
As announced by COMS yesterday, the company's
special shareholder meeting will be held tomorrow (3/21), despite the fact that
the companies have failed to reach a revised agreement in conjunction with the
looming Exon-Florio issues. None of this should be in any way surprising at
this stage in the transaction, although proceeding with the shareholder meeting
does appear to be a meaningless act. It would not be at all surprising if COMS
reversed itself and decided to postpone the meeting again within the next 24
hours.
The key here is the following passage from yesterday's COMS
press release:
"Since the (Exon-Florio) withdrawal, 3Com,
Bain Capital Partners and Huawei Technologies have been working to construct
alternatives that would address CFIUS’ concerns. To date, the parties have
been unable to agree upon an alternative transaction that addresses CFIUS’
concerns and is acceptable to 3Com’s Board of Directors".
It has been firmly believed throughout this situation, and
will remain so, that no "alternative transaction" will be acceptable
to the CFIUS as long as Huawei remains an active partner in the deal. This case
has very clearly gone far beyond national security issue in a technical sense
and is now firmly entrenched in the political arena.
Given the current circumstances, there continues to be very
little expectation of this transaction being successfully completed.
March 7, 2008 (8:50a) - COMS Shareholder
Meeting Status
COMS has again announced that it intends to
adjourn its special shareholder meeting scheduled for today and will reconvene
the shareholder meeting on March 21, 2008.
The companies have offered no updates on the Exon-Florio
re-filing status, nor have any significant developments occurred regarding
Huawei's involvement in the transaction.
February 29, 2008 (3:30p) - CFIUS Status
Evidently, the COMS statement posted below has
generated a great deal of speculation that the Exon-Florio notification will be
submitted, thus "reviving" this deal's chances of success. While it
is entirely possible that the companies will attempt to obtain CFIUS clearance
again in the near future, there is currently no confirmation that this will
occur in the immediate future.
Furthermore, as has been repeated throughout this
transaction, CFIUS consent is highly unlikely under any circumstances in which
Huawei is involved and this has only been exacerbated by Huawei's own rhetoric
over the last few weeks.
Although it is becoming somewhat redundant to continue
repeating the perception that Huawei is the only issue preventing this deal
from moving forward, the point can not be stressed enough. Any enthusiasm for
COMS-Bain receiving CFIUS clearance with Huawei as a partner is simply
unrealistic at this stage.
February 29, 2008 (8:20a) - COMS Shareholder
Meeting Status
COMS has announced that it intends to adjourn
today's special shareholder meeting and will reconvene the shareholder meeting
on March 7, 2008.
Regarding the CFIUS situation, COMS has issued the following
statement:
"3Com continues to work with Bain Capital
Partners to construct alternatives that would address CFIUS’ concerns
regarding the company’s pending merger transaction with affiliates of Bain
Capital Partners. 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."
Once again, this publication foresees virtually no chance of
a successful deal completion as long as Huawei remains involved in any way.
February 20, 2008 (9:15a) - CFIUS Application
Withdrawn
As we posted our last update on this deal, the
companies announced the withdrawal of the Exon-Florio application with the
CFIUS. COMS has issued the following statements:
“We are very disappointed that we were
unable to reach a mitigation agreement with CFIUS for this transaction,”
said Edgar Masri, President and CEO of 3Com Corporation. “While we work
closely with Bain Capital Partners and Huawei to construct alternatives that
would address CFIUS’ concerns...”
It is now abundantly clear that this transaction will not
succeed with Huawei involved as a partner, regardless of concessions offered by
the companies. If the companies do intend to move forward with this deal,
Hauwei's interest will likely have to be bought out and another investor
brought in to fill the void. Otherwise, the chances of this transaction being
successfully completed now appear to be virtually nil.
February 20, 2008 (8:20a) - Status
Report
COMS has made the following disclosure in a
Form DEFA14A
filed with the SEC:
"(T)he Board considered that, on June 22,
2007, Bain Capital’s initial indication of interest in making a bid to
acquire 3Com in a range of $5.25 to $5.85 per share also included an alternate
valuation methodology for a purchase of 3Com, excluding the TippingPoint
division, of $4.50 to $5.00 per share, in each case subject to obtaining
financing and conducting comprehensive due diligence."
In short, shareholders are now being informed that the
valuation of the transaction may be reduced by roughly $2 billion as a result
of the Tipping Point divestiture, if that action is required to obtain
Exon-Florio clearance. Obviously, this is a significant development for COMS
shareholders to consider leading up to the February 29 special shareholder
meeting. At this point there is no evidence of shareholder concern related to
the valuation decline, but this could easily change over the coming days. An
adjournment of the COMS shareholder meeting would not be terribly surprising
under these circumstances.
With respect to the Exon-Florio review which is expected to
reach its second deadline shortly, there has been no report of the CFIUS'
intentions with respect to issuing a decision or referring the case the White
House. It continues to be the expectation of this publication that the CFIUS
will not be swayed by the Tipping Point divestiture offer and will instead let
the President make the final ruling in this case. If this does indeed occur,
the Presidential decision would be due in roughly the second week of March
2008.
February 13, 2008 (3:00p) - Status
Report
As widely reported throughout the day, COMS and
Bain have offer to sell COMS' "Tipping Point" software operation in
order to appease the CFIUS and, perhaps more importantly, federal
politicians.
While this is an interesting gesture, it would appear to
fall short of the primary concern, which is of course Huawei Technologies -- at
least at the CFIUS review stage. Whether or not this proposal will convince the
White House to consent to the transaction (assuming the CFIUS defers the case
upward) remains somewhat of a difficult development to predict. There will
certainly be quite a bit of political involvement from this point forward in
anticipation of the CFIUS' ultimate decision, and it can be assumed that some
of that involvement will involve direct contact with the White House.
Once again, the problem here is no longer the technical
presence, or lack thereof, of national security issues. This is now a political
matter in which perceptions and momentum will more than likely determine the
outcome. Unless the Bain consortium can somehow convince several key
politicians that Hauwei can not possibly be considered a national security
problem, the chances of this deal succeeding remain very small.
February 12, 2008 (3:55p) - Status
Report
As widely reported throughout the day, Huawei
Technologies officials have publicly criticized the U.S. security concerns
which have surfaced in this transaction.
Unfortunately for Huawei, and all parties involved in this
transaction, attempts to dissuade U.S. politicians and/or the CFIUS from
rejecting this deal as structured will fall upon deaf ears. Whether or not
legitimate security concerns actually exist here is essentially irrelevant. The
perception that security concerns exist is now fully entrenched and will
not change as long as Hauwei has an interest in the buyout of COMS. Verbal
attacks on U.S. officials will only serve to exacerbate this issue, rather than
convince politicians and regulators that they are in error.
Huawei's outburst in now way changes the outlook for this
transaction. The perception remains that this deal has very little, if any,
chance of successful completion under the current conditions.
February 6, 2008 (10:10a) - Status
Report
This transaction appears to be heading towards
the inevitable failure, as the House Energy and Commerce Committee is now
(indirectly) involved in the Exon-Florio review process. This development is
not in the least surprising and simply adds to the Congressional concerns that
surfaced on
October 10, 2007. (It will be noted that the original House
bill remains active, but has not been scheduled for debate as of yet.)
The additional Congressional participation essentially
guarantees that adequate pressure will be place on the CFIUS to refer this deal
to the White House for final consideration, and likely will force the White
House to reject the transaction on national security grounds. While this is not
assured at this point, ever indication points to this deal being terminated as
long as Huawei continues to have a significant interest. This simply can not be
repeated enough in this situation.
Final action by the CFIUS is anticipated in approximately
the third week of this month.
January 25, 2008 (9:10a) - Definitive Proxy
Statement Filed
COMS filed the definitive proxy statement for
this transaction yesterday (1/24).
The COMS shareholder meeting will be held on February 29,
2008, for shareholders of record as of January 22, 2008.
The proxy does not disclose any details regarding the
critical Exon-Florio review associated with this transaction. Nevertheless, it
may be assumed that the CFIUS has extended the initial investigation period,
which is believe to have occurred in the first week of January. Using January 4
as an estimated extension date, the second phase investigation deadline will
fall on approximately February 18, 2008.
Despite COMS continued claims that this transaction
represents no national security risk, is is abundantly clear at this point that
the CFIUS will not consent to the deal under Exon-Florio. The case is fully
expected to be referred to the White House for final disposition, and at this
stage it is unclear what decision will be made at that level. However, it will
be noted that some federal politicians have already begun signalling that
special measures may be enacted if the White House allows this transaction to
proceed.
In short, there remains very little chance that the
companies will successfully complete this transaction as long as Huawei is
involved.
The proxy also discloses that the HSR waiting period expired
on an unidentified date.
January 3, 2008 (10:05a) - Exon-Florio
Status
As widely reported, the Exon-Florio review is
expected to be extended (or has already been extended) this week by the CFIUS
for this proposed transaction. Given the circumstances, this will result in the
least surprising Exon-Florio extension in history, including the P&O/Dubai
Ports transaction two years ago. There is simply no reason to anticipate CFIUS
clearance in this case any time soon, and every reason to anticipate this case
being referred to the White House for final disposition.
There have also been several reports suggesting that former
Massachusetts Governor, and current Presidential Candidate, Mitt Romney is
being pressured by other candidates to intervene on behalf of opponents to the
transaction, due to Romney's past association with Bain Capital. Naturally,
this is a significant factor for this deal, as the more political exposure the
Bain-Huawei collaboration receives, the more likely it is that opposition
within D.C. will grow, leading directly to the White House.
It has been stated repeatedly by this publication that Bain
must somehow completely remove Huawei from this transaction in order to
successfully complete this transaction. This concept now appears to be
particularly valid given the intense opposition and imminent CFIUS review
extension. Despite Bain's recent claims that this transaction somehow
represents some sort of cutting-edge business strategy to include and improve
relations with China, this is clearly not the political climate to highlight
the nature of this transaction.
Again, there currently appears to be little chance of this
deal succeeding as currently structured. Assuming the Exon-Florio review
continues into February and eventually ends up with the President, it is
expected that the Chief Executive will reject the transaction.
December 14, 2007 (3:10p) - Status
Report
Politico.com published
this
report on December 12 revealing a situation in which certain Democratic
members of the U.S. House of Representatives have confronted the White House
regarding leaks in the Exon-Florio review.
Although this development does not appear to directly impact
the pending CFIUS review, it certainly does highlight the extremely sensitive
nature and volatility of this particular case.
The transaction is clearly hinging behind-the-scenes
developments in D.C. with respect to the Huawei issue, and all indications are
that there is almost no support for allowing the deal to proceed as structured.
It would be somewhat surprising if the companies do not seriously consider
re-structuring the deal soon to exclude Huawei, or abandon the transaction
altogether in the near future.
December 11, 2007 (1:30p) - Austrian FCA
Approval
This entry will simply note that the Austrian
FCA formally approved this transaction on December 8, 2007.
There are no updates available regarding the critical
Exon-Florio review at this time.
December 6, 2007 (8:55a) - Status Report
The Exon-Florio and HSR review details for this
transaction remain an enigma, as the companies simply refuse to provide
information specific to regulatory matters.
However, it is now assumed that the Exon-Florio review
initial deadline occurred within the last several days resulting in a 45-day
extension by the CFIUS. There is virtually no chance this case would have been
approved during the first-stage review process, so this is a highly confident
assumption. Thus, it can be estimated that the second-stage Exon-Florio review
deadline will occur in roughly mid-January 2007.
It has been reported by various sources over the last few
days that Office of the Director of National Intelligence has provided the
CFIUS with a very negative report on the transaction, using the term
"threat" to assess the national security aspects of Huawei's
involvement. This hardly comes as a surprise given the broad political (again,
see this
House Bill (HRES 730) introduced on October 10) and increasing
public concerns with this transaction.
An example is this
Pittsburgh Post-Gazette editorial published yesterday which
contains the following:
"Huawei was founded by a former officer of
the People's Liberation Army, who has an affinity for limited capitalism and a
man-crush on Mao, according to Rep. Thaddeus G. McCotter, R-Mich., in a Human
Events commentary.
"This is a no-brainer. This deal must die."
This case is clearly one in which the CFIUS, via the
Exon-Florio review, was meant to intervene, regardless of real or perceived
national security threats. Any hopes of Bain actually completing this deal rest
on Huawei's participation in the acquisition. As long as Huawei has a stake
here, the chances of Exon-Florio clearance are virtually nil.
On a separate note, the GFCO approved the transaction on
November 20, 2007.
November 26, 2007 (8:10a) - Status Report
(Austria/Germany)
Both the Austrian FCA and German FCO are
currently conducting reviews of this transaction.
The Austrian FCA review deadline is December 7, 2007;
the GFCO deadline is December 10, 2007.
Approvals from these regulators are currently expected
without any delays.
November 16, 2007 (1:20p) - Status
Report
According to
published reports, the Exon-Florio review of this transaction
is in the "early-stage" process as of today. However, this has not
been confirmed by the companies and precise filing and initial deadline dates
have not been obtained. However, as noted previously, we are projecting an
Exon-Florio initial deadline of November 21, and it remains fully expected that
a second phase, 45-day review period will begin in that general time frame.
This would naturally push the Exon-Florio review well into December and likely
into the beginning of January 2008.
The secondary reviews in Austria and Germany are also in
process. The Austrian FCA began its review on November 9, and has set a
deadline of December 7, 2007. The GFCO review began on November 12,
creating a deadline of December 10, 2007. Approvals from both regulators
are expected without delays for this transaction.
November 7, 2007 (4:15p) - Status Report
As of this entry, the HSR and Exon-Florio
reviews are in progress according to COMS, but the company refuses to provide
the exact filing dates for either. The first proxy was filed on October 23 and
disclosed that the HSR notification had been filed, but that the Exon-Florio
notification had not been filed. Thus, it can be roughly projected that
the HSR review began on or about October 23, creating an expiration date of
approximately November 21, 2007. HSR clearance should be obtained
without delay in for this transaction.
The Exon-Florio review, on the other hand has developed into
a critical issue in this deal. On October 10, 2007,
this bill (HRES 730)was introduced in the U.S. House of
Representative expressly aimed at rejecting the merger under CFIUS, due to the
Huawei's, a Chinese entity, current financial involvement in transaction. The
bill concludes the following:
"(T)he preponderance of publicly available
evidence clearly suggests that as currently structured, the proposed
transaction involving Huawei threatens the national security of the United
States and should not be approved by the Committee on Foreign Investment in the
United States."
This instantly brings to mind the Dubai Ports World 's
acquisition of P&O almost two years ago which sparked widespread national
security concerns as well as Congressional action forcing Dubai to relinquish
ownership of several U.S. ports. The federal action in that case was quick and
decisive, and without a doubt established a precedent for cases of this nature.
Although Huawei's interest in buyout is less than 20%, that
seems to be enough to have convinced several politicians that national security
technology can be compromised as a result of this transaction. Whether or not
that is actually the case appears to be insignificant. If a port deal involving
an Dubai (a.k.a. middle east ally) can be so easily affected by Congressional
intervention, Chinese involvement in 3Com's sensitive technologies will
certainly not be acceptable, whether the concerns are valid or not.
This
article published yesterday by Representative Thaddeus McCotter offers a
scathing analysis of Huawei and its intentions, and can be viewed as an ominous
foreshadowing of government involvement in this transaction.
Currently, there is no indication that Huawei can be
replaced as part of the buyout team, or that there is any intention of doing
so. Therefore, it must be assumed that Bain expects the Exon-Florio situation
to play out in its favor over the next several weeks. This just do not seem
likely under the circumstances. If this case reaches the White House -- which
is a very strong possibility -- the chances of clearance are not terribly
strong. The current administration obviously does not share the affection it
has for Dubai with China.
In short, the companies will need to resolve the Huawei
issue if they hope to obtain CFIUS consent. Failing some sort of drastic change
to Huawei's involvement, this deal very clearly has a high probability of
failing.
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