3Com rebuff may foretell Motorola troubles
The U.S. national security concerns that scuppered network gear maker 3Com Corp’s (COMS.O: Quote, Profile, Research) plan to bring in a Chinese investor could erase an already short list of foreign suitors for Motorola Inc’s (MOT.N: Quote, Profile, Research) handset business.
The largest U.S. mobile phone maker, which also supplies communications systems to governments and public safety groups, has seen no company yet emerge with a public bid for the unit, while analysts have said it could attract an offer from China’s Huawei Technologies Co Ltd HWT.UL or ZTE Corp (0763.HK: Quote, Profile, Research).
But Huawei and private equity firm Bain Capital Partners pulled their proposal to buy 3Com this week after failing to win approval from The Committee on Foreign Investment in the United States (CFIUS), a panel led by the U.S. Treasury Secretary that reviews corporate deals with foreign buyers.
So Huawei, or any foreign company from China to the Middle East, would likely think twice before talking to another firm such as Motorola with U.S. government contracts, analysts said.
“It’s definitely a risk factor,” said Stifel Nicolaus analyst Rebecca Arbogast, who was surprised the 3Com deal was not approved given that it had seemed ready to divest a sensitive unit that makes network protection systems for government agencies and large businesses.
Under Bain’s proposal, China’s top telecom equipment maker would not have had operational control of 3Com or access to sensitive U.S pay day advance. technology. But several U.S. lawmakers complained the deal threatened national security due to Huawei’s alleged ties to the Chinese military.
“There are definitely some extremely hawkish people in the Bush administration who see China as the enemy. A lot of Chinese companies don’t understand some of the fear that goes on in the everyday American and the government,” said Shaun Rein, managing director of China Market Research Group.
Fostering a more receptive U.S. attitude toward Chinese investment will take time, said Edward Yu, president of Beijing-based research firm Analysys International.