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Washington Blocks 3Com Takeover


Convenient Xenophobia, anyone?

Washington's inconsistency is adding to confusion over sovereign wealth funds' investments in U.S. companies.

The Committee on Foreign Investment in the U.S., or CFIUS, yesterday shot down the $2.2 billion takeover attempt of 3Com (COMS) by Bain Capital and private Chinese technology firm Huawei Technologies. At issue is a division of 3Com's business that sells security software to the U.S. government and concerns over Huawei's ties with the Chinese government.

Bain agreed to spin off the security division and Huawei offered to take a non-active management role, but the two firms could not sufficiently assuage Bush administration security concerns to complete the deal.

The credit crunch has intensified the debate over foreign investment in U.S. companies, one which thwarted the purchase of British firm P&O by Dubai Ports World in 2006. That CFIUS has given the nod to multi-billion dollar stakes in our largest financial firms like Citibank (C), Merrill Lynch (MER) and Morgan Stanley (MS) is a stark indication of who pulls the strings in Washington.

The public will likely cheer the decision, as The Wall Street Journal reports voters are increasingly wary of foreign investments in U.S. companies. Public Strategies, a political consulting firm, released a study showing voter's concern over the effects of actions of sovereign wealth funds within our borders.

As we noted the last time American protectionism made the headlines, this is a dangerous time for xenophobia.
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