Huawei buys Symantec stake in HK-based JV for $530m

Updated: 2011-11-16 10:44

(China Daily)

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Huawei buys Symantec stake in HK-based JV for $530m

Huawei Technologies Co Ltd's previous attempts at acquisitions and bids in the United States over the past few years were blocked by US lawmakers. [Photo / China Daily]

HONG KONG / NEW YORK - Huawei Technologies Co Ltd, the world's No 2 telecom equipment maker, plans to buy the remaining 49 percent stake in a joint venture with Symantec Corp that it does not already own for $530 million to bolster its corporate security solutions business.

The deal allows Huawei to boost its product portfolio for its enterprise customers and helps Symantec improve its bottomline by dropping the loss-making business, even as the value of the deal fell below market expectations.

The deal is subject to approval from regulators in the United States, but analysts and company executives foresee few hurdles because the joint venture, called Huawei Symantec, was established in Hong Kong and Huawei already owns the majority stake.

"Whether this deal will complete or not ... it is still a question mark for now, but I feel that they have a better chance because this joint venture was established in Hong Kong", outside of the Chinese mainland, said Cathy Huang, an analyst at Frost & Sullivan in Singapore.

Huawei expects the deal, which some analysts estimated could be worth about $1 billion, to close in the first quarter of 2012.

"We likely overestimated Symantec's hand in the negotiation given the joint venture was operated under the control of Huawei," Citigroup Inc said in a report.

Few hiccups

Shenzhen-based Huawei and smaller crosstown rival, ZTE Corp, have previously encountered obstacles in clinching some deals in the US.

For Huawei, the concerns also stem from its founder and CEO Ren Zhengfei, who is a former Chinese military officer.

Earlier this year, Huawei backed away from its acquisition of US server technology company 3Leaf System Inc's assets, bowing to pressure from a US government panel that suggested it should divest the assets.

In 2008, Huawei gave up a bid for US networking equipment company 3Com, while in 2010, a group of lawmakers opposed Huawei's bid to supply mobile telecommunications equipment to Sprint Nextel Corp.

But this case is different, as the joint venture Huawei Symantec was set up in Hong Kong by Huawei and US security software company Symantec in 2008.

"The majority of the assets and customers are located in China and other regions. This is not about the US," said Ross Gan, a spokesman for Huawei.

Gan said Huawei would brief relevant government stakeholders as part of the routine regulatory approval process for such transactions based on the local laws and regulations that apply.

The venture, in which both Huawei and Symantec contributed around $150 million each, has research and development centers in cities such as Beijing and Shenzhen and in Silicon Valley in the United States, according to the company's website.

"It's a good thing for Symantec in that it's been a drag to their earnings per share. I'm sure it's incrementally positive," said Brian Freed, an analyst at Wunderlich Securities. "There shouldn't be any political or regulatory issues related to this."

The venture has lost money since it was set up in February 2008, according to Symantec's most recent annual report filed with the US Securities and Exchange Commission.

Symantec posted $123 million as its share of the venture's losses from February 2008 to December 2010. The venture, which is expected to continue to be in the red through 2013, was estimated to make a loss of $82 million this year, according to Citigroup analysts.

Symantec achieved the objectives that it set out for the venture and is leaving with a good return on its investment, Symantec's chief executive, Enrique Salem, said in the statement.

Reuters

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