3Com Corp. (NASDAQ: COMS) is up almost 20% on reports that Bain Capital LLC and Huawei Technologies Co. plan to reapply for U.S. regulatory approval to buy the network-equipment maker.

The financial terms of the original deal probably won't change much - a $2 billion price, 85% stake for Bain and the remaining minority share of Huawei. The difference is Huawei would not have access to sensitive technologies that blocked the deal in the first place.

Last week, the deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition. As SECInvestor's earlier article said on the matter:

"Huawei, the largest network company in China with strong ties to the country's Communist government, has been accused in the past of selling communications equipment illegally to rogue states such as Saddam Hussein's Iraq. In addition, the company raises concerns even superficially as it is run by a former Chinese Army Officer.

3Com provides some network security solutions to the U.S. Defense Department, and with Chinese hackers seen as a major threat to U.S. infrastructure this acquisition was a hot political issue. In fact, the senior Republican member of the House Foreign Affairs Committee even sponsored a bill to specifically prevent 3Com's sale.

Under such scrutiny, Bain decided to drop its request for approval of the deal by the CFIUS, effectively meaning the deal is dead in its current form. The problematic Defense Department business is actually done only by a small wing of 3Com known as TippingPoint, and there is a possibility the deal could be renegotiated to exclude that unit."

Though it seemed likely that Bain would be just as happy to leave the deal dead given the state of the economy and 3Com's rather weak business currently, instead the firm may look to capitalize on the regulatory hurdles in order to secure a lower purchase price. With 3Com's core business still a distant second to giant Cisco Systems (NASDAQ: CSCO), even a deal at a lower price is good news for 3Com shareholders.

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