Roundup Ready: 3Com, Huawei, Bain, Republicans, and Romney
Posted on October 11, 2007
Filed Under Apparatchiks, China Business |
A roundup of the latest news on the 3Com, Bain Capital, Huawei deal.
3Com: To boldly follow where others have been before
3Com expects to become profitable in four years. Their CFO was quoted in Shanghai Daily:
The company will earn a profit “around” 2011 as sales rise about 60 percent from last year to US$2 billion, said Jay Zager, chief financial officer of the Massachusetts-based company.
3Com plans to target emerging markets such as India, the world’s fastest-growing major telecommunications market, and the Middle East, Zager said. The strategy may build on the success of 3Com’s former venture in China with Huawei Technologies Inc, Bain’s partner in the US$2.2 billion bid to buy the United States company.
“The trick is to offer more products,” Zager said. “We’re going to focus on emerging markets like India and the Middle East, places where there’s going to be greater annual growth.”
3Com has done well in China since their initial partnership with Huawei, but they haven’t been trumpeting any stunning growth numbers. Management shakeups are one thing, toppling Cisco off its perch is another. Good luck turning tricks.
Huawei: Show us the money
Contrary to what I had initially assumed, Huawei claims that their objective is not to use 3Com as a vehicle for expanding into the US market. According to their press release:
“This is a commercial investment for Huawei. We believe the new ownership structure will help 3Com to improve its business operations, provide better products and services and bring more value to its customer,” said Mr. Ren Zhengfei, CEO of Huawei Technologies.
If 3Com is really serious about going after developing markets, Huawei may be the key. They have a strong record in the developing world. The only problem is that it came at the expense of profits. Selling equipment cheap doesn’t offer a juicy margin.
Huawei had promised not to compete against their erstwhile joint venture partner in China, and there’s even less reason to now. It will be interesting to see if there are any formal sales and marketing agreements between Huawei and 3Com in the short term. In China and elsewhere, 3Com will need all the help they can get.
On a side note, 3Com paid US$882 million to buy out Huawei from the joint venture. Huawei will own “less than” 20% of 3Com in the $US2.2 billion deal. Pulling strings at half the price sounds like a pretty good deal.
Bain Capital: Which hoop do we need to jump through?
Bain Capital has submitted the 3Com deal to the Committee on Foreign Investment in the United States (CFIUS). According to the article, this is typically done when there is a strong likelihood of the deal being reviewed. See the Republican section below for more on that.
Hank Paulson, the Secretary of the Treasury, heads the committee. He won’t be involved in the deliberations, though. Goldman, Sachs, according to 3Com’s press release was their adviser on the deal. Hank worked there for thirty years, the last seven or eight as CEO. He will recuse himself.
The new CFIUS regulations require a counterintelligence review, with the overall process lasting 30 to 45 days.
Republicans: RED ALERT! Meat and drink for the blue team
For anti-China Republicans, a godsend. From the Washington Times:
Senator Jeff Sessions, Alabama:
“If there is a loophole that is allowing valuable defense technology to be obtained by the Chinese military that will enable them to accelerate their military expansion, then we ought to close it,â€
Representatives Pete Hoekstra and Duncan Hunter, of Michigan and California:
“This sale raises the ongoing and thorny issues of illegal technology transfers to China, public reports of Chinese cyberattacks on U.S. government networks, repeated efforts by the Chinese government to gain access to military sensitive and classified technologies of the U.S. government, and continuing concerns about infringement of intellectual property rights by Chinese companies,â€
Senator Christopher Bond, Missouri:
“It is troubling to me that a foreign military organization with interests in communications might obtain access to our security systems,”
From the International Herald Tribune:
Senator Jon Kyl, Arizona:
“Senator Kyl has serious concerns about the purchase of 3Com by a consortium that includes a company with numerous ties to the Chinese People’s Liberation Army,†said his spokesman, Ryan Patmintra.
Representative Thaddeus McCotter, Michigan:
“I wouldn’t trade with the Soviet Union, and I wouldn’t trade with China,â€â€¦. This is something that is a clear and present danger to their standard of living, (speaking of his constituents)â€
Oddly, the Democrats are pretty quiet about it. John Kerry made a typically anodyne statement of concern, but I couldn’t find anything else. Jim McGovern, the Massachusetts Democrat who represents the district where 3Com is headquartered, hasn’t said anything.
The technology in question, an intrusion prevention appliance made by 3Com subsidiary Tipping Point, is hardly the crown jewel of the US’ cyberdefenses. It’s a well-respected tool that is one element of a larger security infrastructure. There are plenty of other American vendors with similar products.
I expected hot air, but the level of indignancy is positively steaming.
Romney: Don’t ask, don’t tell
While Mitt Romney hasn’t worked at Bain, the company he founded, in years, his ties usually come up when Bain makes an investment that someone deems controversial. While there are a fair number of posts out there about Romney selling the US out to Chinese communists, he hasn’t addressed the deal directly.
It’s not surprising. The republican right is suspicious of his conservative credentials and the last thing he wants to do is to take a stand on this. Especially when he still gets something like US$8 million a year from Bain.
The CFIUS ruling will come out in mid-to-late November or early December, about a month before the Iowa caucuses. If he’s still leading in the polls, approval of the deal could provide timely ammunition for one of his opponents.
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