Huawei Preps $2B Handset Handshake

News reports say Huawei Technologies Co. Ltd. has shortlisted five private equity firms to bid for a $2 billion stake in the company's mobile handset unit, a divestment that's regarded as having strategic international importance.

Bain Capital , Goldman Sachs & Co. , Kohlberg Kravis Roberts & Co. (KKR) , and Silver Lake Partners were named yesterday by the Financial Times and the Wall Street Journal's online edition as four of the five companies that made it past the first round of bidding. Both reports cited anonymous sources for the information.

Separately, Reuters reported that the fifth name on the shortlist is AEA Investors LLC . The news agency reported that AEA's inclusion is due to the involvement of the firm's Hong Kong-based managing director, former Nortel Networks Ltd. CEO Bill Owens. (See Nortel's Owens: Krazy About Korea and Nortel's Owens Joins Fat Cat Club.)

The bids value Huawei's handset division at about $4 billion, with companies offering to take a roughly 50 percent stake -- making the deal worth potentially $2 billion. Whether Huawei retains majority ownership of the handset unit is yet to be determined.

According to the reports, the first round of bidding, which closed earlier this week, was open to individual companies only -- no consortia bids were allowed. The five survivors will be allowed to team up for their second-round bids, the reports say.

The deal appears to be Huawei's latest attempt to build a stronger U.S. presence. Private equity could give Huawei an ally that might have an easier time sealing U.S.-based deals. (See Huawei's Plan B?.)

Huawei had tried to secure a minority stake in the Bain acquisition of 3Com Corp. (Nasdaq: COMS), announced last fall. But the U.S. government intervened, with the Committee on Foreign Investment in the United States (CFIUS) indicating it would block the deal due to national security concerns. Bain killed the $2.2 billion deal in March. (See 3Com Tastes the Bain, 3Com Takeover in Limbo, and Huawei & Bain Bail on $2.2B 3Com Deal.)

Huawei has become a serious player in telecom, but that's happened largely on the strength of sales outside North America, with Asia/Pacific (excluding China) showing particularly strong growth. (See Huawei Pumps Up Its APAC Biz, Huawei Rivals AlcaLu for DSL Crown, and Huawei Sets Bumper Sales Target.)

In 2002, Huawei tried creating the Futurewei brand name for its North American operation, but that strategy has fizzled out. Instead, the Plano, Texas-based operation is going under the name Huawei North America, as Huawei officials noted to Light Reading at NXTcomm last month.

Officials at the "Operation Formerly Known as Futurewei" could not immediately be reached for comment yesterday afternoon.

— Craig Matsumoto, West Coast Editor, Light Reading