U.S. buyout shops team up for China's Huawei unit

By Michael Flaherty

HONG KONG (Reuters) - Private equity firms Silver Lake and Providence Equity Partners have teamed up to bid for a stake in a unit of China's Huawei Technologies, sources involved in the process said on Monday, in a deal that could fetch more than $2 billion.

Another team is AEA Investors, a mid-sized private equity firm, and General Atlantic, according to one source involved in the process. As mid-sized firms, that team would likely have to bring in a third partner to clinch Huawei's fast-growing mobile devices division.

U.S. private equity firms have jumped at the chance to pursue the unit, attracted to its size and growth potential -- not just in China but across the globe. Huawei has made no secret of its plans to expand into the United States.

If priced at more than $2 billion, a Huawei deal would be the fifth largest cross-border inbound deal in China on record, and the largest so far this year, according to Thomson Reuters data.

It would be the second largest private equity deal in China ever, after ICBC's (1398.HK) (601398.SS) acquisition by an investor group comprising Goldman Sachs (GS.N), Allianz (ALVG.DE) and American Express (AXP.N).

Silver Lake and AEA were among the five firms that made it through round one of the Huawei auction, sources have said. Bain Capital, Goldman Sachs' (GS.N) private equity group and Kohlberg Kravis Roberts & Co KKR.UL were the other firms that made it through.

All firms mentioned have declined to comment on the process.

As in any auction, teams can change and bidders can drop out at any minute. Bidders are reviewing financial documents for due diligence, and another round of offers is expected in the next few weeks, said the sources, who were not authorized to speak to the media.

A Huawei spokesman did not return a message seeking comment. Morgan Stanley (MS.N), the bank running the auction, declined to comment.

Privately held Huawei HWT.UL hired the bank in May to sell a majority stake in the unit, which is made up of five business groups, among them mobile handsets, data cards for laptops, and routers for home use. A U.S. partner would give Huawei the expertise to beef up its presence in the United States.

Huawei's mobile devices unit doubled revenues last year to more than $2 billion, sources have said.

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.

AEA Investors is best known for the whopping profit it made in selling the U.S. personal products company Burt's Bees last year. 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 have said.

While not a mega-fund like Bain or KKR, General Atlantic is a prominent U.S. buyout firm with an Asian presence. Media reports have said that General Atlantic is part of a consortium vying for Morgan Stanley's stake in China International Capital Corp (CICC).

(Reporting by Michael Flaherty; Editing by Anne Marie Roantree)