Huawei Drops Takeover Bid for 3Leaf Systems

Chinese telecom giant Huawei Technologies Co. has decided to back away from its acquisition of U.S. computer firm 3Leaf Systems, bowing to pressure from a U.S. government panel that had voiced security concerns about the deal.

Huawei, which was founded 23 years ago by a former People’s Liberation Army engineer, bought 3Leaf’s assets in May 2010 for $2 million but did not immediately disclose the deal with the Committee on Foreign Investment in the U.S. [CFIUS], which reviews deals for possible national security implications. According to Huawei, which has long rejected claims that it has ties with China’s security services, CFIUS suggested that the Chinese company voluntarily divest 3Leaf’s assets.

In a letter to U.S. Commerce Secretary Gary Locke and Treasury Secretary Tim Geithner, a group of top U.S. lawmakers accused Huawei of having ties not only with the People’s Liberation Army, but also with the Taliban and the Iranian Revolutionary Guard. However, as recently as February 14, Huawei insisted in pushing ahead with the deal and said it would seek a yes or no from the White House rather than divest.

Now it has changed its course. In a brief statement, Huawei said the controversy surrounding the deal led it to change its mind.

“This was a difficult decision, however we have decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf,” Huawei said in a statement Saturday.

“Huawei will remain committed to long-term investment in the United States. The significant impact and attention that this transaction has caused were not what we intended. Rather, our intention was to go through all the procedures to reveal the truth about Huawei,” it said.

Huawei is the world’s No. 3 mobile gear maker behind Ericsson and Nokia Siemens Networks.

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