By Michael Flaherty
HONG KONG, July 3 (Reuters) - Huawei Technologies, China’s largest mobile phone equipment maker, has narrowed the field of bidders for a stake in its mobile devices unit reported to be worth more than $2 billion to five private equity companies, sources said on Thursday.
Bain Capital, Goldman Sach’s (GS.N) private equity group, Kohlberg Kravis Roberts & Co. and Silver Lake made it through the first round of bidding, sources involved with the deal said.
Mid-size company AEA Investors — best known for the whopping profit it made in selling the U.S. personal products company Burt’s Bees last year, also made it onto the list for the second round of bidding. Its bid is being led by managing director Bill Owens, the former CEO of telecommunications equipment maker Nortel Networks Corp NT.TO NT.N, sources said.
Huawei’s fast-growing mobile devices unit doubled revenues last year to more than $2 billion, sources said, with cash flows of around $250 million.
A deal for a roughly 50 percent stake in the unit would be one of the largest acquisitions in mainland China this year.
The Wall Street Journal said earlier the mobile devices unit is valued at $4 billion based on the offers.
One source said that Blackstone Group (BX.N), Carlyle Group and TPG Capital did not make it into the second round of bidding.
Privately held Huawei [HWT.UL] has hired Morgan Stanley (MS.N) to sell a majority stake in the unit, which is made up of five business groups — mobile handsets, data cards for laptops, and routers for home use among them.
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.
First-round offers were only allowed to come from individual companies or buyout firms, as opposed to consortium bids.
Bidders may team up in the second round, sources said, which is good news for AEA which would need to partner with a larger firm to complete a deal.
Bain has widely been seen as a front-runner for the mobile unit deal, 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 COMS.O 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.
The presence of New York-based AEA in an auction with buyout giants is attributed to the expertise and experience of Owens, who is based in Hong Kong. Owens was not immediately availble to comment on Thursday.
Prior to joining AEA in April 2006, he was chief executive officer and vice chairman of Nortel. Owens was previously the CEO of Teledesic LLC and vice chairman of high-tech company Science Applications International Corporation (SAIC).
In addition to his background in the telecommunications business, Owens has another trait he shares with Huawei’s founder: A military past.
Prior to joining SAIC, Owens was U.S. vice chairman of the Joint Chiefs of Staff, the country’s second-ranking military officer. He also served as commander of the U.S. Sixth Fleet in 1990 and 1991 during Operation Desert Storm in Iraq.
Huawei did not return calls for comment. Morgan Stanley declined to comment. The private equity firms mentioned either did not comment or could not immediately be reached. (Additional reporting by Vinicy Chan) (Reporting by Michael Flaherty; Editing by Louise Heavens)