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5/2/2005
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IBM Completes Sale Of PC Business To Lenovo

IBM and Lenovo made minor modifications to the terms of the sale to win U.S. government approval.

Lenovo Group said Sunday that it has completed its $1.25 billion acquisition of IBM's personal computing division, making the Chinese vendor the world's third largest PC maker behind Dell and Hewlett-Packard. The planned sale was initially unveiled in December.

In a statement, Lenovo chairman Yuanqing Yang said the deal "marks a new era for the global PC industry" and promised to deliver "high-quality products and world-class service." Bolstered by IBM's customer base, Lenovo, going forward, expects to post annual revenue of about $13 billion.

Former IBM PC head Stephen Ward, who becomes CEO of Lenovo, said the company's ongoing alliance with IBM gives it a "powerful competitive position in global markets." He added that Lenovo would introduce a range of new products to Western markets "within weeks."

As part of the sale, IBM acquires an 18.9% equity stake in Lenovo. IBM also will market and sell Lenovo products under a formal marketing alliance. Lenovo PCs and laptops will continue to bear the IBM ThinkCentre and ThinkPad logos in addition to the Lenovo brand. The newly reconstituted Lenovo will have headquarters in Purchase, N.Y. The company's primary manufacturing facilities are located in several Chinese cities, including Beijing, Shanghai, and Shenzhen.

While IBM and Lenovo officials can now look forward to making Lenovo a global PC giant, the deal wasn't without its hitches. Some U.S. lawmakers expressed concerns that it would result in the transfer of sensitive technology to a communist-led country that some consider a political and economic rival to the United States. Nonetheless, the Committee on Foreign Investments in the United States, which is attached to the Treasury Department, gave the deal the green light in March after reviewing its national-security implications.

At the time, a source close to the deal said IBM and Lenovo had to make some "minor modifications" to the agreement to win federal approval. For instance, Lenovo employees working at IBM's manufacturing and design facility in Raleigh, N.C., must be housed in a separate building on the campus, the source said.

Other issues arose as IBM and Lenovo officials hammered out the deal's finer points. Insiders say Lenovo executives initially pushed for the company to have dual headquarters in Beijing and New York state. The IBM contingent favored the single headquarters in Purchase to signal to buyers and investors Lenovo's intention to move beyond its regional status in Asia and become a major player in the United States. The IBM side ultimately prevailed.

In addition to funds from IBM, Lenovo recently secured $350 million in investments from three, U.S.-based private equity firms: Texas Pacific Group, General Atlantic Group, and Newbridge Capital Group.

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