3Com probe

The Treasury Department-led Committee on Foreign Investment in the United States (CFIUS) this week extended an initial 30-day investigation into the national security implications of the proposed merger between 3Com and China's Huawei Technologies.

The CFIUS probe is now entering a second, more intensive 45-day investigation, according to U.S. officials close to the review who say that the extension is another sign that the proposed $2.2 billion merger deal is in trouble.

Bush administration officials disclosed earlier that the U.S. intelligence community conducted a required review of the deal and notified CFIUS in November that the merger plan, as currently structured, posed a threat to U.S. national security.

House Republicans in October also passed a nonbinding resolution calling on the White House to block the deal as a threat to U.S. security.

The probe began after reports that Huawei would gain access to computer intrusion technology used by the Pentagon and intelligence community.

The 3Com deal involves a buyout led by Bain Capital Partners, with Huawei holding a minority stake. Bain spokesman Alex Stanton declined to comment on the extended probe but said "Bain Capital is working closely with CFIUS to provide U.S. officials with information about the proposed transaction."

"We believe CFIUS will conclude that the company will remain firmly in the control of an American firm, has only a small minority foreign shareholder, and that the deal presents no risks to national security," he said, commenting on a report of the prolonged investigation first reported by the Financial Times.

Huawei was linked in the past to violations of United Nations sanctions on Iraq by supplying fiber optic communications gear to the Iraqi military under Saddam Hussein. The company, which has close ties to the Chinese military, also was involved in industrial espionage against U.S. and Japanese firms.


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