For Huawei, U.S. M&A Door Remains Closed

Huawei Technologies felt it would be different this time.

Back in 2008, Huawei was thwarted in its ambition to become a minority owner of 3Com, tagging along on an $2.2-billion acquisition bid by Bain Capital that ultimately was discouraged on national-security grounds by the Committee on Foreign Investment in the United States (CFIUS).

After that embarrassment, which caused a Huawei executive to term the American national-security concerns “bullshit” — if only because Huawei would have owned just 16.5 percent of 3Com if the Bain-led purchase had been approved — the Chinese network-gear company assumed a lower profile, licking its wounds and biding its time.

Better Luck This Time?

Huawei was strong in its home market, after all, and it was gaining momentum and customer patronage in Europe and in developing markets in Asia, Africa, and South America, too. It would have other opportunities to crack North America. Time was on its side.

In recent months, Huawei felt now was the time to step from the shadows again. The company believed circumstances had become more favorable, perhaps because of the worldwide economic downturn, perhaps because if felt that old doubts and reservations about its ties to the People’s Liberation Army (PLA) and China’s rulers had faded under a new presidential administration in the U.S.

Whatever the case, Huawei earlier this year got ready to take another high-profile plunge into M&A activity on American shores, this time without the cover of a private-equity partner. (One concern, which nobody uttered publicly back in 2008, was that Bain might have been acting as a temporary beard for Huawei, taking the majority share of 3Com up front only to sell it back to Huawei, which had a joint venture with 3Com called H3C, in increments. Was it true? We’ll probably never know.)

Lobbyists, Lawyers, and Investment Bankers

Just a few months back, according to sources quoted by Bloomberg, Huawei pulled out all the stops. It hired lobbyists, investment bank Morgan Stanley, and high-priced law firms such as such as Sullivan & Cromwell LLP and Skadden, Arps, Slate, Meagher & Flom LLP.

Even with all that well-connected hired help, and even though it outbid its rivals by a wide margin in two different acquisition forays, Huawei went home empty-handed. Again.

Indeed, as Bloomberg reported, Huawei outbid Nokia Siemens Networks (NSN) for Motorola’s telecommunications-networking unit and it offered more than Pace PLC put forward to close its purchase of 2Wire. In the case of the Motorola division, Huawei’s bid surpassed the one offered by NSN by more than $120 million.

In each case, the seller was concerned that a Huawei acquisition would be delayed or rejected on U.S. national-security concerns. As such, the sellers in both transactions sought to negotiate the simplest, surest deal rather than the one that offered the biggest payday. For its part, NSN got creative in negotiating an agreement with Motorola that indirectly boosted the value of its offer, allowing Motorola to argue that it had done its fiduciary duty in negotiating the best deal possible under the circumstances.

Motorola might even have gilded the lily by suing Huawei in the middle of July, alleging that the Chinese vendor had wrongfully obtained Motorola’s trade secrets relating to cellular-networking gear.

Back to the Stop Sign

Well, no matter how you cut it, Huawei has been rebuffed again. This time it had a coterie of well-heeled dealmakers in its corner, and it still was unable to overcome its own political radioactivity. Motorola and 2Wire, as well as their agents, were concerned that deals with Huawei might not be approved. Rather than take that risk, they went in a different direction.

What can Huawei do now? Short of an explicit announcement from the U.S. government that it will look favorably on Chinese network-equipment companies’ acquisitions of U.S. technology concerns — an unlikely scenario. to be sure — Huawei will remain at the same impasse that stopped it cold in 2008.

Advertisement