bloggingbuyouts

Many buyouts have failed over the last six months. That "material change" clause in every deal is frequently as vague as asking someone if they promise not to get mad at you before you tell them the problem. Many of these blown-up mergers have resulted in large break-up fees being paid out by the would be buyer to the intended buyout company. But many private equity firms have been able to get out of these break-up fees.

The truth is that your definition of "a material change" will differ from mine, and mine will differ from others. You can bet that "a material change" differs greatly between the opinions of a buy a seller. Here are some of the deals where break-up fees "ot other damages and penalties" may come up shortly.

3Com Corp. (NASDAQ: COMS) just hinted at this today, as it wants a YES Vote from holders from the Bain-led offer and noted that it has been unable to appease CFIUS review concerns because of Huawei's involvement in the deal.

Developments between Alliance Data Systems (NYSE: ADS) and The Blackstone Group LP (NYSE: BX) are starting to heat back up again.

This pending Clear Channel Communications inc. (NYSE: CCU) has been noted as the longest standing current large club deal that is still in pending deals, but all indications point to the banks wanting to get out of the loans. They might not be able to get out of it. And they might. After this long, it isn't even clear what damages would be eligible if any. Scott Sperling of Thomas H. Lee was just on CNBC shortly to discuss the Clear Channel deal, and to discuss his new $10 billion fund he recently raised. He didn't comment about Clear Channel, but he said it may take another 6 to 12 to 18 months before values and conditions come in line with deal making strategies.

3Com Corporation (NASDAQ: COMS) is essentially delaying any material events from coming in the shareholders' meeting scheduled for Friday, March 7, 2008 as it has again delayed the vote on the pending Bain Capital Partners & Huawei merger until Friday, March 21, 2008.

This extra 14 days is to allow 3Com to continue working with Bain Capital Partners to construct alternatives to address concerns raised by the Committee on Foreign Investment in the United States (CFIUS) regarding the pending merger. 3Com does note that there are no assurances that the discussions will not adversely affect the terms of the pending merger transaction.

There has already been an offer on the table that would have resulted in an already lower price, so at a minimum shareholders should already expect that to be a fact. Based upon how this has traded, it seems that the group is just going to be unable to please CFIUS as long as Huawei in China is involved in the deal. It would seem that without Huawei in the deal, the need to acquire 3Com is a far less profitable venture.

3Com hasn't been able to make the magic work, so being overly excited here is a hard task. With shares down 1% today, it sure looks like traders and investors aren't putting too much faith in this merger.

3Com Corp. (NASDAQ: COMS) is postponing its vote that was scheduled for today over the proposed acquisition. That isn't really a surprise since the company and the Bain-led group had to withdraw their merger approval application because of CFIUS concerns.

But what is sort different is that the company is going to reconvene the meeting and vote next week on March 7, 2008. The merger was already indicated that a lower price was coming because of a divestiture that would have been a merger concession to secure CFIUS approval. It appears that 3Com and Bain Capital might be making another run at CFIUS with more concessions.

3Com continues to work with Bain Capital Partners to construct alternatives that would address concerns regarding the company's pending merger transaction with affiliates of Bain Capital Partners. The companies are leaving themselves an out if this doesn't work out:

• "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."

We'll see if this will really yield a merger approval or not. 3Com shares are up 20% to $3.50 on renewed hops that the merger will go through. Concessions will likely lower that price far under the $5.11 highs seen over the last 52-weeks, but there's a shot this could still end up being a win for those who have invested in 3Com since the original merger was withdrawn.

3Com Corp. (NASDAQ: COMS) is seeing a severe snag in its acquisition process, and one that appears may actually kill the merger. This morning it has announced along with affiliates of Bain Capital Partners, LLC and Huawei Technologies that the parties have withdrawn their joint filing for a merger approval to the Committee on Foreign Investment in the United States.

In the release, the company noted that it was disappointed that it was unable to reach a mitigation agreement with CIFIUS to secure the necessary merger approval. 3Com's board of directors approved the merger back on September 28, 2007. While both parties remain committed to continuing discussions, it is fairly difficult to imagine that they will be able to overcome government oversight.

3Com is going to have to go back to basics and focus on its own business plan for the time being, regardless of continuing discussions. Read the rest of the backgrounder at 247WallSt.com.

Jon Ogg is a partner and editor of 247WallSt.com.

On Tuesday, Bain Capital Partners responded to national security concerns regarding its $2.2 billion buyout of 3Com Corp. (NASDAQ: COMS). A detailed article from late yesterday is here from the Associated Press.

Bain and affiliates have offered several proposals to the U.S. government in order to secure its pending buyout. It is unclear if these will secure the merger or not. National security concerns about sensitive military technology lie in the 16.5% stake held by Chinese telecommunications company Huawei due to the inherent close relations with all large Chinese companies and Chinese government.

Bain has asked for a review with CIFIUS, the Committee on Foreign Investment in the United States, to gain approval of the buyout. The shareholder vote is on February 29, 2008, although shareholders are expected to approve the deal. That is a different matter than the pending CIFIUS review.

3Com shares are having their best day perhaps since the buyout deal was even announced last year. Shares are up 8% today to $4.13.

We have noted this and other at-risk mergers earlier. While it is understandable that critical data protection is normal for any government, it is actually somewhat surprising that so much critical government data is passing through 3Com equipment.

Jon Ogg is an editor and partner at 247WallSt.com.

This morning, 3Com (NASDAQ: COMS) announced that private equity firm, Bain Capital, would put it out of its misery and pay $2.2 billion in cash for the company. 3Com has lagged so far behind that it has been painful to watch. 3Com and Cisco Systems (NASDAQ: CSCO) indeed could provide at least two to three chapters in an investing teaching and history book. Here's the Cliffs Notes version:

Summer of 1994 was a tough technology environment. Technology had a great run from 1990 through 1994, till summer that is. Valuations contracted and investor fatigue set in for about four to five months. I was traveling through Silicon Valley with a couple of British portfolio managers, visiting companies. One day we had a breakfast meeting with then CEO Eric Benamou of 3Com and lunch with a senior VP at Cisco (whose name escapes me). Benamou was an intellectual, a refined man, but did not possess the street smarts necessary for a tech company CEO. He was arrogant, and bluntly declared that Cisco's days were numbered and 3Com would acquire any tech company necessary to achieve total domination. OK, great, and we went on to Cisco for lunch.

The senior VP was a classy guy, never said a bad word about any competitor and just explained Cisco's game plan and execution philosophy. Here is the funny part: In July 1994, BOTH companies had a market capitalization of $9 billion.

3Com went on to make some stupid acquisitions like US Robotics, paying top dollar for a company in serious decline with evaporating margins. 3Com has never been the same since. Eric Benamou went on to pursue "other interests" and 3Com has languished at the bottom of the tech food chain.

According to the Wall Street Journal [subscription required], Marlborough, MA-based 3Com Corp. (NASDAQ: COMS) is going private with the help of Bain Capital and Huawei Technologies, for more than $2 billion -- or $5.50 a share. 3Com is up 34% to $4.94 in pre-market.

3Com has been hobbled for most of this decade but it has a storied history. Its founder invented Ethernet -- a way for computers to share information. It bought a company that made a very popular modem during the era when people dialed up the internet on a telephone line. And with this acquisition came a technology which became the Palm Pilot -- a Personal Digital Assistant (PDA) which was an indispensable appendage for dot-commers in the 1990s.

Unfortunately, 3Com's financial position was weak -- it lost $89 million on $1.27 billion in sales in the year ending June 2007, but it generated $58 million in cash. It couldn't maintain its technology lead and was surpassed by competitors in all its markets.

I am not sure how Bain Capital and Huawei Technologies expect to get a return on their investment. However, 3Com's ability to generate cash in the most recent year suggests that a combination of cost cutting and entry into new markets could make it a profitable investment.

Regardless -- if I owned 3Com stock -- which has lost 20% of its value in the last year -- I would be happier today.

Peter Cohan is president of Peter S. Cohan & Associates,. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

According to the Deal Journal blog, 3Com (NASDAQ: COMS) is receiving potential buyout offers from several interested parties, including Silver Lake Partners and Bain Capital. Nortel Networks (NYSE: NT) is also a potential buyer of the company, according to Deal Journal's sources.

Interestingly, 3Com has Citadel Investment Group involved as an activist investor. Citadel, which is Kenneth Griffin's investment vehicle, owns 8.4% of the company as stated by this 13D filing. And one must wonder whether these buyout offers are attributable to this 13D letter from Citadel, which makes it clear that the firm believes that 3Com is deeply undervalued. It's also interesting that Robert Chapman, an activist known for his vicious attacks on management, owns the stock in his fund but doesn't have an activist role.

3Com seems like an interesting acquisition candidate because it looks cheap on a sales basis when compared to its industry. Although the company has trouble actually earning money on its sales, this might interest private equity firms because many believe they can run the company "better" if its privately owned and not publicly traded. 3Com doesn't have any debt after backing out the cash on the balance sheet, and as a result potential acquirers could perform a leveraged buyout and not risk overloading the company's balance sheet with debt.