Lenovo working with agencies on lucrative deals

LENOVO said yesterday that more negotiations were required with multiple US government agencies as the Chinese company seeks approval for more than $5bn in planned acquisitions.

Lenovo still believes it can close the $2.3bn purchase of International Business Machines’s (IBM’s) low-end server unit and the $2.91bn purchase of Google’s Motorola Mobility unit this year as planned, CEO Yang Yuanqing said. “We are making progress, but we definitely still have some things to do with multiple government agencies.”

The IBM deal was expected to spark a close review partly because US agencies, including the Defense Department and the Department of Homeland Security, buy the IBM servers, according to Bloomberg Intelligence. Lenovo and IBM, seeking more time for a US nationalsecurity review, in June resubmitted the deal for examination by an interagency panel, a person familiar with the matter said at the time.

“The IBM and Motorola deals are important for Lenovo, especially for growth beyond fiscal 2016,” said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial. “All parties are hoping for calendar year-end closure, but there is always a risk that regulators could stretch it out.”

The Committee on Foreign Investment in the US examines acquisitions of US companies by foreign investors to determine the effects on national security, with a standard inquiry taking 75 days. Lenovo said in June the companies were still on track to complete the deal by year’s end. Lenovo was successful in getting the committee’s approval in 2005 for an earlier deal, in which the Chinese company acquired IBM’s personal-computer unit for $1.25bn.

Review of the latest IBM purchase, which was announced in January, comes amid heightened tension between the US and China over cybersecurity. In May, the US accused five Chinese military officials of stealing trade secrets and other information from American companies.

The server purchase would add a business with wider profit margins than PCs and give Lenovo about 14% of that market, the company has said. The Motorola deal would add an established mobile phone brand in developed markets, including the US.

“With the Motorola deal, we will become a global player in the smartphone area,” Yang said. “The IBM deal is equally important to our enterprise business or even more important because that gives us a very strong foundation, very strong customer base, very good technology and a good team.”

Mr Yang has kept the company growing by winning market share in PCs as he expands the smartphone and tabletcomputer businesses. Lenovo is moving beyond its home base of China by targeting growth in the Middle East, Africa and Latin America.

“Looks like strength everywhere — their emerging markets business in both smartphones and PCs seemed relatively strong,” Alberto Moel, an analyst at Sanford C Bernstein & Co in Hong Kong, said yesterday. “The PC contraction is now heading into the late stages, and Lenovo is driving the consolidation to its advantage,” he said.