By ReutersInformationWeek
The fast-growing unit produced revenues of more than $2
billion last year, the sources said, more than double what it
notched in 2006. One source said the unit has cash flows of
around $250 million.
While the process is in its early stages, with first-round
bids due at the end of this month, sources say private equity
interest is heavy in what would be one of the largest inbound
acquisitions in China so far this year. None of the sources
wanted to be named because of the deal's sensitivity.
"Its handsets unit shipments jump more than 50% every
year. So the bid will definitely draw fierce competition as
everyone would love to share a slice of the big pie," said Alvin
Kwock, an analyst at JP Morgan.
First-round offers can only come from individual companies
or buyout firms, sources say, as Huawei and Morgan Stanley are
trying to avoid a swarm of bidding groups and their bankers.
Bidders may be allowed to team up in the second round.
The company hopes to use the investment to help it expand
abroad, especially in the United States, where it only has a
tiny footprint compared to its reach in Europe.
Huawei and Morgan Stanley declined to comment.
Huawei provides telecommunication networks to 35 of the
world's top 50 operators with over one billion users worldwide,
according to its website. It initially built itself by selling
to Chinese and other emerging market customers at prices below
those of foreign competitors such as Ericsson and Motorola.
As of March 2008, Huawei had 82,787 employees. The firm
expects contract sales to rise 44% to $23 billion in
2008.
Founder and Chief Executive Ren Zhengfei is a former Peoples
Liberation Army officer, a past that is seen as giving the
company close links to the government.
That perception, coupled with its insistence on staying
private, has made Huawei a tough business for some private
equity firms and their bankers to understand and work with,
sources say.
RARE BIG DEAL?
Its mobile business appears to be a nice fit for buyout
firms in Asia, however.
The business has strong cash flows and growth potential, and
would also be a rare big-ticket deal in the region. Western
buyout firms in Asia have loads of money to spend and have had
few opportunities to do so lately, thanks in part to a dearth of
willing sellers in China and India.
Two sources close to the deal said Bain Capital is seen as
an early front runner, based on its relationship with both
Huawei and Morgan Stanley.
Bain teamed up with Huawei in a bid for U.S. telecoms gear
maker company 3Com last year, but the deal was abandoned after
U.S. regulators blocked it. Bain Capital's top executive in Asia
is Jonathan Zhu, Morgan Stanley's former China chief executive
and a veteran of telecom sector deals.
But Bain will have plenty of competition, sources say, with
rivals such as TPG Capital, Providence Equity Partners, and
Permira preparing to bid. The private equity firms declined to
comment or could not immediately be reached.
Although some telecoms companies are expected to look at the
asset, sources say few have shown up early on.
Shenzhen-based Huawei competes head to head with Ericsson,
Alcatel-Lucent and Nokia Siemens Networks. Huawei clients
include Vodafone and Telefonica.
The firm has built a large research and development centre
in India with a plan to triple staff there to 2,000 by the end
of 2008. It also has R&D centres in Dallas, Stockholm and
Moscow.
(Editing by Tony Munroe and Quentin Bryar)
By: Michael Flaherty and Vinicy Chan
Copyright 2008 Reuters. See original article on InformationWeek
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