China fears scuttle $400m Nortel-Huawei deal

Huawei's ties to the Chinese government may have killed off Nortel's plan to sell its Ethernet business to the Chinese vendor.

Toronto-based Nortel, whose stock shrank 96% last year, received a $400 million bid for the business in September, Forbes.com reported.

But the deal fell apart because of concerns with Huawei's Chinese government ties and security issues, the website said, quoting Avian Securities.

Some of Nortel's customers that carry US government data were spooked over the possibility of cyber-spying and would have stopped buying Nortel's equipment, causing Huawei to pull out. Forbes could not reach Huawei for comment.

An attempt by privately-held Huawei to buy networking firm 3Com in partnership with Bain Capital collapsed last year for similar reasons.

The Shenzhen-based firm has won contracts in developing markets around the world but has yet to establish a foothold in the North American market. It has predicted its worldwide contract sales will grow from $23 billion to $30 billion this year.

Its offer for the Nortel Ethernet group was a generous one, more than twice the market value of division. Israeli networking Radware reportedly has bid as little as $50 million, Forbes.com said.

The onset of the economic crisis and the collapse in its stock price prompted Nortel to seek advice on a possible bankruptcy filing in December.

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