Original URL: http://www.theregister.co.uk/2011/02/21/huawei_3leaf_deal_dropped/

Huawei drops 3Leaf buy

Capitol Hill says no

By John Leyden

Posted in Data Networking, 21st February 2011 12:04 GMT

Chinese telecoms equipment manufacturer Huawei has withdrawn from its controversial takeover deal for US server firm 3Leaf Systems following objections from US politicians and regulators.

The modest $2m (£3.1m) deal was agreed in May 2010 but not immediately disclosed at the time. Overseas ownership concerns prompted an investigation of the deal by the Committee of Foreign Investment in the United States, which raised objections that prevented the deal from completing.

Rather than fight the decision, Huawei has decided to abandon its interest in 3Leaf.

The allegedly close ties between Huawei and the Chinese People Liberation Army (PLA) have created problems for previous commercial deals by the telecom and network equipment firm. Most notably the $2.2bn 2007 deal by Bain Capital to buy 3Com with minority financing from Huawei Technologies fell through because of regulatory opposition.

Most of this opposition stemmed from concerns about letting a Chinese firm gain access to the TippingPoint IPS system used to protect government departments that formed part of 3Com's portfolio. 3Com was eventually sold to HP for $2.7bn in 2009.

Politicians and intelligence agencies in Australia, India and the UK have all expressed concerns about giving the go-ahead for local carriers to use Huawei's kit. The opposition Conservatives lobbied against a proposed deal by Huawei to buy Marconi back in 2005, for example.

Former Home Secretary David Blunkett voiced concerns about the security implications of BT sourcing a sizeable proportion of its kit from Huawei back in 2009. Despite this, BT remains a major customer.

Huawei is in the running to sell equipment that would extend mobile networks to the London underground in time for next year's Olympic Games, the BBC reports. ®