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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.

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User Rank: Author
10/18/2013 | 6:09:40 PM
re: Lenovo Faces Regulatory Roadblocks With BlackBerry Buy
On the contrary, the federal government, and particularly the Dept. of Defense, has a huge stake on what would happen to all those BlackBerry enterprise servers that handle sensitive DoD information. Do you think for a minute that DoD is going to stand by and let BerryBerry turn ownership of those servers over to the Chinese? I don't think so! If If Canada doesn't block the deal, one imagines the U.S. won't stand idly by.
User Rank: Ninja
10/18/2013 | 5:12:11 PM
re: Lenovo Faces Regulatory Roadblocks With BlackBerry Buy
I wasn't aware of that particular aspect of Canadian law, but since BB is incorporated in Canada, Her Majesty's Canadian Government is going to be a major player in whatever is decided (other jurisdictions can bar the combined company from doing business in their respective territories, but only Canada can dissolve the company). I'm guessing that in the end Canada will block the deal, saving the U.S. and E.U. the trouble.
User Rank: Ninja
10/18/2013 | 5:06:19 PM
re: Lenovo Faces Regulatory Roadblocks With BlackBerry Buy
I suspect the Feds will be a little concerned that Chinese could influence Lenovo to put a backdoor on the BBM traffic allowing them to listen to Obama and other government workers. God help us if they don't care, then disfunction will have reached new heights.
IBM shedding their PC hardware business to Lenovo has no potential for that kind of mischief, completely different issue.
User Rank: Ninja
10/18/2013 | 4:16:04 PM
re: Lenovo Faces Regulatory Roadblocks With BlackBerry Buy
I wasn't happy when IBM sold out to Lenovo but the Fed's didn't care. I doubt the Feds care about Blackberry any more than IBM.
User Rank: Ninja
10/18/2013 | 3:15:27 PM
re: Lenovo Faces Regulatory Roadblocks With BlackBerry Buy
About all of these companies being interested, let's understand that it was Blackberry that sent letters of interest to these companies, not the other way around. We can't assume interest on any of their parts, even if they've replied with questions.
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