Chinese firm buys IBM's PC business

In a major breakthrough in China's ambition to become a key global player in information technology sector, its largest personal computer maker Lenovo Group Ltd on Wednesday acquired US-based IBM's PC-making business for $1.75 billion.

According to the details of the definitive agreement, Lenovo will acquire IBM's entire global desktop and laptop computer research and development and manufacturing business.

In return, Lenovo Group will pay IBM $650 million in cash and allot $600 million worth of Lenovo stocks, which will make IBM the second largest shareholder in Lenovo with 18.9 per cent shares.

Additionally, Lenovo will assume approximately $500 million of net balance sheet liabilities from IBM.

"There will be minimal financial impact resulting directly from the transaction to IBM's fourth-quarter 2004 results," IBM said.

"The purchase will make Lenovo Group the third largest PC make worldwide with an annual revenue exceeding $10 billion," Lenovo Chairman Liu Chuanzhi told reporters after inking an agreement with IBM vice president John Joyce.

"As Lenovo's founder, I am excited by this breakthrough in Lenovo's journey towards becoming an international company," Liu said.

The transaction is expected to be completed in the second quarter of 2005 and requires the approval of Lenovo's shareholders and review by relevant regulatory organisations.

Lenovo Holdings, Lenovo Group's controlling shareholder, has agreed to vote its shares in favour of the transaction, the companies said in a press release.

The landmark deal ends an era for the world's largest computer company and kicks off a new age in which China's top PC maker Lenovo emerges on the world stage as a major PC brand and IBM as its strategic partner, industry analysts said.

Lenovo will have combined annual PC revenue of approximately $12 billion and volume of 11.9 million units, based on 2003 business results -- a fourfold increase in Lenovo's current PC business.

As part of the transaction, Lenovo and IBM will enter a broad-based, strategic alliance in which IBM will be the preferred services and customer financing provider to Lenovo.

Lenovo will be the preferred supplier of PCs to IBM, enabling IBM to offer a full range of personal computing solutions to its enterprise and small and medium business clients.

Stephen M. Ward, Jr., currently IBM senior vice president and general manager of IBM's Personal Systems Group, will serve as the chief executive officer of Lenovo following completion of the transaction.

Yuanqing Yang, currently vice chairman, president and chief executive officer of Lenovo, will serve as the chairman of Lenovo post-transaction.

Founded in 1984, Lenovo was the first company to introduce the home computer concept in the China, and since 1997 has been the leading PC brand in China and across Asia with annual revenues of about $3 billion.

IBM's PC business generated over $9 billion in revenues in 2003 and offers a full range of desktop and notebook PC systems.

According to International Data Corporation figures for 2003, the combined unit market share of Lenovo and IBM's PC businesses worldwide is approximately 8 per cent.

The transaction will dramatically strengthen Lenovo's global presence in the fast-growing notebook PC marketplace, the release said.

Lenovo Group will locate its PC business worldwide headquarters in New York, with principal operations in Beijing and Raleigh, North Carolina, and sales offices throughout the world.

Upon completion of the transaction, Lenovo will have approximately 19,000 employees. Approximately 10,000 current IBM employees -- more than 40 per cent of who already are in China and less than 25 per cent of whom are in the United States -- will join Lenovo.

"The transaction is expected to have minimal impact in the aggregate on employment, benefits and compensation in either company," the release added.