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    Greater China
     Mar 11, 2005
Lenovo-IBM deal gets US security nod

BEIJING - Lenovo Group Ltd has won clearance from the United States' national-security oversight committee to acquire IBM's personal-computer (PC) business, the two companies announced on Wednesday. This will help the new partners overcome resistance from some US lawmakers.

An IBM executive said the Committee on Foreign Investments in the United States (CFIUS) had given the deal its unanimous consent - the final external approval needed to close the US$1.25 billion sale of IBM's PC major to Chinese Lenovo. "We were able to get a unanimous agreement from the members of the committee," Stephen Ward, general manager of IBM's Personal Systems Division, said in a telephone interview. Once the deal closes, Ward is to become the chief executive of Lenovo, which is headquartered in Beijing.

The 12-agency CFIUS reviews purchases of US businesses by overseas corporations for possible national-security impact. The IBM inquiry was a "full investigation", which occurs in less than 1% of cross-border deals. The unusual scrutiny was a reflection of the growing concern in some quarters of US policymaking over China's emergence as an economic and military behemoth.

On December 7, Lenovo agreed to pay IBM $650 million in cash and $600 million in stock, and assume $500 million of debt. The transaction would expand Lenovo's PC business fourfold, giving it an annual revenue of about $12 billion. IBM will keep 19% stake in Lenovo after the merger, allow Lenovo to use its PC brands for five years, and retain service, financing and support operations for PCs.

The merger of IBM's PC business with China's biggest PC maker - the first combination ever of a major US corporation and a top Chinese one - will create the world's third-largest PC maker and one strongly positioned in several fast-growing markets. The deal met unexpected resistance when some US lawmakers began decrying the loss of a US-based PC maker to China on national security-counts. Lenovo's links with the Chinese military only contributed to the disquiet in Washington. A Chinese government agency will hold a stake of just under 30% in Lenovo after the deal is completed.

CFIUS proceedings are kept secret. Created in 1998, the multi-agency committee is drawn from Homeland Security, Defense, Justice, Treasury and Commerce among other departments. Some media reports said that to get the clearance, IBM had to make several commitments and concessions, which might affect its sales and performance down the line. The New York Times reported that Lenovo agreed to separate American employees, mainly in the Research Triangle Park in North Carolina, drawn from IBM workers there who work on other products such as larger server computers and software.

Yet other media reports cited unnamed sources who said that as part of the security clearance deal, IBM and Lenovo have agreed to move 1,900 employees from the North Carolina research facility that IBM shares with other technology companies to another building within the research park and also carry out some "minor" modifications in order to enhance the building's security. Bloomberg had last month reported that IBM offered concessions that included blocking Lenovo's access to the identity of US government customers and physically sealing off buildings in the Research Triangle Park, where the two companies will occupy an office.

Some committee members had raised objection to the Lenovo deal, saying the presence of a Chinese state-owned company in such a "sensitive" sector on US shores could result in military-technology espionage. IBM engineers and executives reportedly dismantled a desktop PC and a ThinkPad notebook to explain to the committee where the components came from and how they were assembled, to put the members' fears at rest.

The go-ahead from CFIUS was received on Tuesday, Ward said. He said the terms of the approval are confidential, but that no compromises were required over the location of Lenovo facilities in sensitive research areas, nor were limits put on Lenovo's ability to sell PCs to US agencies. "Everything that CFIUS asked of us was perfectly reasonable and the type of things that would be in a business plan. I don't think we made any compromises at all," Ward said. Stating that Lenovo will be a "great corporate citizen", he said the new Lenovo planned to move aggressively in India and Latin America and leverage IBM's global sales reach to grow out of China.

(Asia Pulse/XIC)

US sees a spy in China's Lenovo
(Jan 25, '05)

Uphill task for Lenovo
(Dec 24, '04)

Lenovo stocks drop on doubts over IBM deal (Dec 11, '04)

Lenovo's $1.25bn splurge on IBM
(Dec 9, '04)


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