Bidders Frustrated By Huawei Unit Auction

HONG KONG (Reuters) – As a large Chinese corporate still in private hands, Huawei Technologies has a reputation of keeping information tightly under wraps.

Bidders for a Huawei unit are discovering just how tight that lid can be.

Huawei HWT.UL hired Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) in May to sell a majority stake in its mobile handset business, which saw its revenues double last year to more than $2 billion.

A deal could be worth more than $3.5 billion, say private equity and banking sources involved in the process.

At least four major private equity firms, including Bain Capital, are on a short list for the asset, with the hope of a sale coming before the end of the year.

But the sources say the process is going slower than expected, with Huawei hesitant to give up key information the bidders and their bankers need to evaluate the business.

The process could collapse should Huawei continue to keep data close to its chest, the sources say, with bidders keen on crucial data given the size of the transaction.

“There is a lot more wood to chop on this deal,” said a banker involved with the deal who did not want to be identified.

Huawei declined to comment. Morgan Stanley also declined comment as did the private equity firms.

The private equity firms are attracted to the unit’s size and growth potential. But they are also finding that this is an early stage business that faces global competition and pressures across the industry.

The main bidders are still in place: Reuters reported last month that private equity firms Silver Lake and Providence Equity Partners teamed up to make a bid for the unit, and are through to the next round. Bain Capital, which teamed up with Huawei for a deal last year, is also on the short list, sources involved in the deal had told Reuters in July.

Goldman Sachs’ (GS.N: Quote, Profile, Research, Stock Buzz) private equity arm is still in the process, the sources say, as is AEA Investors.

AEA’s bid is led by Bill Owens, former CEO of Nortel Networks Corp (NT.TO: Quote, Profile, Research, Stock Buzz) (NT.N: Quote, Profile, Research, Stock Buzz), who is likely to partner with a bigger firm, sources say. It is unclear whether General Atlantic is still together with AEA, as Reuters previously reported.

The frustration surrounding the process highlights just how difficult it is to get deals done in China. China’s economic growth has attracted investors and deal makers from across the globe, who are finding that while they would love a chance to buy into Chinese assets, actually striking a deal isn’t easy.

Government intervention and reluctance on the part of executives to give up full control have been among the obstacles.

In Huawei’s case, bidders would like to know about profit margins and agreements it has with other providers, sources say.

But the company does not want to give up too much information that could tip off customers, and competitors.

Shenzhen-based Huawei competes with Ericsson (ERICb.ST: Quote, Profile, Research, Stock Buzz), Alcatel-Lucent (ALUA.PA: Quote, Profile, Research, Stock Buzz) and Nokia Siemens Networks NSN.UL. Its clients include Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz) and Telefonica (TEF.MI: Quote, Profile, Research, Stock Buzz).

Huawei provides telecommunication networks to 35 of the world’s top 50 operators, has more than 82,000 employees and expects contract sales to rise 44 percent to $23 billion in 2008.

The mobile unit is made up of several business groups, including mobile handsets, data cards for laptops, and routers.

Huawei plans to expand into the United States, which explains why it wants a U.S. buyout firm to provide it expertise.

An agreement would likely be the second-largest private equity deal ever in China after the acquisition of a stake in ICBC (1398.HK: Quote, Profile, Research, Stock Buzz) (601398.SS: Quote, Profile, Research, Stock Buzz) by an investor group comprising Goldman Sachs, Allianz (ALVG.DE: Quote, Profile, Research, Stock Buzz) and American Express (AXP.N: Quote, Profile, Research, Stock Buzz).

(Reporting by Michael Flaherty, Editing by Ken Wills and Mathew Veedon)