Lenovo Faces Regulatory Roadblocks With BlackBerry Buy

Lenovo would like to purchase the reach of BlackBerry's enterprise network. But it's unlikely to end up in China-based Lenovo's hands, security experts say.
Lenovo has signed a non-disclosure agreement with BlackBerry so that it may explore in detail the possibility of acquiring the troubled smartphone maker. BlackBerry is courting suitors in a bid to survive, but Lenovo's interest would draw regulatory scrutiny that could deep-six the deal.

According to The Wall Street Journal, Lenovo wants to buy all of BlackBerry, including the company's smartphones, patents, and enterprise network. The move could significantly bolster Lenovo's mobile enterprise cred. Lenovo has grown steadily since acquiring IBM's computer business in 2005, and adding BlackBerry's assets could make it a major player for the IT budgets of big businesses.

Security concerns, however, may prevent Lenovo from acquiring all of BlackBerry and it might have to settle for pieces of the business. Both Canadian and U.S. regulators would scrutinize the deal in detail.

[ For more analysis of BlackBerry's fall from grace, see BlackBerry: The Fax Machine Of Its Era. ]

BlackBerry's most valuable asset is its enterprise network, which powers the email and BBM messages that are sent from and received by BlackBerry smartphones. In the U.S., the Department of Defense still uses between 470,000 and 600,000 BlackBerrys. U.S. and state government officials together use about 1 million BlackBerrys in total, and President Barack Obama is among them.

Lenovo is based in China, which automatically raises national security red flags. Other Chinese firms, such as Huawei and ZTE, have struggled to acquire U.S. companies and expand their infrastructure businesses here. For example, U.S. regulators recently mandated that Sprint must divest some of its Chinese-made networking infrastructure in order for it to score a separate deal with SoftBank.

The likelihood of BlackBerry's enterprise network ending up in Lenovo's hands is small, according to security experts, who expect it will instead be sold to a company based in North America. Using the Investment Canada Act, the Canadian government has wide prerogative to veto foreign acquisition of a Canadian company if it feels the acquisition represents a national security threat or doesn't offer a "net benefit" to Canada. The Committee on Foreign Investment in the U.S. would certainly put such a deal through the ringer too. With BlackBerry's network off the table, that leaves little of real value to Lenovo.

Lenovo could pick up BlackBerry's smartphone business, but analysts think the flailing handset unit has no value. Lenovo already has a hardware business that churns out laptops, tablets and smartphones, and it's hard to see why it would need BlackBerry's hardware assets. BlackBerry's patents hold more value and might be worth Lenovo's efforts to acquire.

What Lenovo needs most is reach. Its mobile devices sell well in its home market, but not outside China. If Lenovo were able to continue using the BlackBerry name on its smartphones it might be helpful in the short term, but eventually that equity will play itself out. Without the enterprise network, it's not clear why Lenovo would bother pursuing BlackBerry's other business units.

BlackBerry already has one offer on the table, from Fairfax Financial. Since it made the offer, questions have arisen over Fairfax's ability to cobble together $4.7 billion. BlackBerry is also talking to Cisco, Samsung, Intel, Google and SAP, according to Reuters. Fairfax's offer has a November 4 expiration date, so other companies interested in BlackBerry need to speak up soon.