Private equity firms line up for Huawei unit sale

By Michael Flaherty and Vinicy Chan

HONG KONG, June 5 (Reuters) - Bain Capital and TPG Capital [TPG.UL] are among private equity firms lining up to bid for a stake in the mobile devices unit of China's Huawei Technologies, sources with direct knowledge of the process said on Thursday.

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 percent 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.

Privately held Huawei [HWT.UL] has hired Morgan Stanley 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.

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 (ERICb.ST) and Motorola (MOT.N).

As of March 2008, Huawei had 82,787 employees. The firm expects contract sales to rise 44 percent 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.

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