Huawei-3Com deal threatens U.S. security: lawmakers

WASHINGTON (Reuters) - Eight U.S. lawmakers called on the Bush administration on Monday to block a proposed buyout of Massachusetts-based technology group 3Com Corp (COMS.O), saying a Chinese company's role in the $2.2 billion transaction "threatens the national security of the United States."

Led by Florida Rep. Ileana Ros-Lehtinen, the House of Representatives members are backing a measure that says the 3Com deal should not be approved by the Committee on Foreign Investment in the United States (CFIUS), a federal inter-agency panel that reviews international takeovers.

Coming at a time of growing tension over Chinese imports and corporate expansion, the House measure is a nonbinding resolution that would not have the force of law if passed.

But Ros-Lehtinen, the senior Republican on the House Foreign Affairs Committee, said in a statement: "It would be a grave error for U.S. regulators to approve a deal that permits minority ownership in 3Com by one of the least transparent companies operating in China, a firm with shadowy ties to Chinese army and intelligence services."

3Com said recently that a 16.5 percent stake in the company would transfer to China's Huawei Technologies Co Ltd HWT.UL as part of a deal in which Bain Capital would buy out 3Com.

"I'm certain that the Department of Defense is quite perturbed by this whole thing," said John Tkacik, senior Asian Studies researcher at the Heritage Foundation, a conservative think tank.

Tkacik said recent reforms to the CFIUS review process put the Pentagon "in a strong position to block this acquisition."

The largest telecommunications gear maker in China and one of the largest in the world, Huawei could raise its stake in 3Com another 5 percent under the terms of the Bain agreement.

Based in Marlborough, Massachusetts, 3Com could not immediately be reached for comment on the House resolution.

Bain, a major private equity firm, agreed to submit the deal for CFIUS review. It said: "We are confident CFIUS will conclude that 3Com remains firmly in the control of an American firm, has only a small minority foreign shareholder, and that the transaction presents no risk to national security."

Bain said in its statement that Huawei would not have access to sensitive U.S. technology or U.S. government sales.

According to a 3Com regulatory filing, Huawei would have no operational control or decision-making power for 3Com.

3Com and Huawei were involved in a joint venture known as H3C for several years, giving the companies access to each other's markets. H3C about a year ago was providing more than half of 3Com's revenues, industry analysts estimated.

In the House resolution, Ros-Lehtinen and other lawmakers said Huawei is a privately held company set up in 1988 by a former Chinese army officer and it may still have links to the Chinese government and the army.

The resolution said 3Com sells data-networking equipment to the Defense Department and other government agencies.

(Additional reporting by Ritsuko Ando in New York)