January 10, 2005 12:24 PM PST

IBM-Lenovo deal clears potential block

IBM's plan to sell its PC business to Lenovo Group has cleared a potential regulatory hurdle.

The Federal Trade Commission won't raise objections to IBM's plan to sell its business to Lenovo in a $1.75 billion deal, announced in early December.

The FTC announced Friday that it has granted Lenovo and IBM an early-termination ruling under the Hart-Scott-Rodino antitrust act, which says companies planning large acquisitions must notify the FTC and the U.S. Department of Justice in advance, submitting information about how their plans might affect competition. According to the law, the companies must also wait while the competitive aspects of their proposed acquisitions are evaluated. With the FTC ruling, that waiting period is now over for IBM and Lenovo.

The IBM-Lenovo deal is the biggest PC industry tie-up since Hewlett-Packard bought Compaq Computer in May 2002. For its part, Lenovo is attempting to combine IBM's vast resources in the United States, Europe and Asia with its own presence in China, creating the third-largest PC maker in the world behind Dell and Hewlett-Packard.

Under terms of the agreement, expected to close during the second quarter, Lenovo will take over the daily operations of IBM's PC business, which lost nearly $1 billion in recent years, according to IBM regulatory filings. Lenovo will be in charge of manufacturing and product design, and will also be able to use IBM PC brands such as ThinkPad for five years.

IBM will take an 18.9 percent stake in the new Lenovo, which will re-incorporate in the United States and locate its headquarters in Armonk, N.Y. The deal will free Big Blue to pursue services, software and other more profitable businesses. Besides its stake in the company, IBM will help Lenovo in a number of other ways, including using its sales force to sell Lenovo PCs and providing customer support.

Lenovo will maintain its focus on China, but it also plans to expand its sales in other markets. It is evaluating selling Lenovo-brand PCs to consumers in the United States, for example.

Still, between now and the close of the acquisition, the new Lenovo will have its work cut out for it when it comes to reassuring its IBM corporate customer base.

Technology Business Research--which surveyed 103 information technology staffers at corporations that buy at least 500 IBM PCs per year--reports that those major IBM customers say their future purchases will depend on how IBM manages the transition, including how well it maintains hardware quality, a factor of major importance to a majority of respondents. Those surveyed also cited ongoing service quality, product availability and competitive pricing as influencing factors.

The report says 49 percent of those surveyed were either completely at ease or somewhat at ease with the IBM-Lenovo deal, while 40 percent were somewhat anxious about the deal and 10 percent described themselves as completely anxious about it. At the same time, 75 percent said they have no immediate plans to make any definitive changes to their relationship with IBM. The remaining 25 percent reported plans to open their PC purchases to additional vendors.

 

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