US government could kill 3Com deal

The US government has been looking into a deal which would allow Chinese interests to buy US telecom equipment company 3Com (NYSE: COMS). That investigation is now being extended, a sign the the transaction could be killed.

According to the FT, The Committee on Foreign Investment in the United States "is studying possible national security implications of the 3Com takeover." Huawei Technologies, a Chinese telecom equipment maker, could end up with intrusion prevention technology used by the US Defense Department..

The investigation pits the needs of investors against concerns of the government. 3Com lost money in the last quarter. The only reason the stock trades at $4.52 is the buyout offer. The stock could easily drop to it recent low of $3.22 if the deal is killed.

Aside from the investor pain that the government could cause, the news opens the door wider to issues of which companies are strategic to US interests and which are not. As sovereign funds from other nations put money into US banks and technology companies the problems are likely to become more complex.

The American government is getting into the business of deciding whether shareholders can get money from some corporate buyouts.

Douglas A. McIntyre is an editor at 247wallst.com.