Lenovo Working With Multiple U.S. Agencies on IBM, Motorola: CEO

By Bloomberg News

Lenovo Group Ltd. (992) Chief Executive Officer Yang Yuanqing said more negotiations are required with “multiple” U.S. government agencies as the Chinese company seeks approval for more than $5 billion in planned acquisitions.
Lenovo still believes it can close the $2.3 billion purchase of International Business Machines Corp. (IBM)’s low-end server unit and the $2.91 billion purchase of Google Inc.’s Motorola Mobility unit this year as planned, Yang said in a phone interview today.
“We are making progress, but we definitely still have some things to do with multiple government agencies,” Yang said without elaborating on the remaining issues.
The IBM deal was expected to spark a close review partly because U.S. government agencies, including the Defense Department and the Department of Homeland Security, buy the IBM servers, according to an analysis by Bloomberg Intelligence. Lenovo and IBM, seeking more time for a U.S. national-security review of the planned purchase, in June resubmitted the transaction for
review by an interagency panel called the Committee on Foreign Investment in the U.S., 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.”

CFIUS Review

The committee examines acquisitions of U.S. 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.
IBM and Lenovo were successful in getting CFIUS approval in 2005 for an earlier deal, in which the Chinese company acquired IBM’s personal-computer unit for $1.25 billion.
Review of Lenovo’s latest proposed purchase from IBM, which was announced in January, comes amid heightened tension between the U.S. and China over cybersecurity. The U.S. on May 19 accused five Chinese military officials of stealing trade secrets and other information from American companies.
Lenovo’s Yang spoke today after the company reported net income surged 23 percent to $213.5 million in the three months ended June, from $173.9 million a year earlier. Lenovo posted a 39 percent jump in smartphone shipments, researcher International Data Corp. said, and a 15 percent increase in PC sales, according to Gartner Inc. research.
The IBM unit purchase would add a business with wider profit margins than PCs and give Lenovo about 14 percent of that market, the company has said.
“With the Motorola deal, we will become a global player in the smartphone area,” Yang said in the interview today. “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.”