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Lenovo buy gets green light from Washington

Chinese PC maker passes a national security review of IBM deal. Now it has to take on Dell.

China's Lenovo Group now has clearance from the U.S. government for its big PC deal with IBM.

The Committee on Foreign Investments in the United States, a multiagency panel that evaluates acquisitions of American companies by foreign entities, unanimously approved Lenovo's plan to buy IBM's Personal Computing Division. It had been conducting a review of the deal's potential impact on national security.

IBM, which announced the agreement to sell its PC business to Lenovo in December, plans to take an 18.9 percent stake in the postdeal Lenovo, which plans to reincorporate in the United States. The deal is expected to close on time during the second quarter, IBM said Wednesday.

ward
Stephen Ward, IBM

"We were able to get unanimous agreement from the members of the committee," Stephen Ward, general manager of IBM's Personal Systems Division, said in a telephone interview with Reuters. Ward will become chief executive of the combined company.

The new Lenovo, as executives refer to it, aims to combine its own business in China with IBM's in the rest of the world, creating a PC giant that can compete globally with Dell and Hewlett-Packard. The $1.75 billion deal with IBM would make it the world's third-largest PC maker. It also aims to bring Lenovo PCs, now available only in China, to the rest of the world.

The agreement was quickly approved by the U.S Federal Trade Commission. But in January, the CFIUS--which is made up of 11 government agencies, including the departments of Justice and the Treasury--decided to conduct an extended review.

Scrutiny from Capitol Hill
Although the proceedings are kept secret, government officials essentially wanted to speak to Lenovo executives and hear more about the company's plans, Ward said.

Earlier this year, some urged the CFIUS to take a harder look. Three high-ranking members of the House of Representatives, for example, wrote a letter to the committee, urging it to conduct a full investigation of the proposed sale.

"We had an opportunity to meet with leaders in virtually every executive part of the government--senators, congresspeople--they really, really listened to the strategy of the company," Ward told CNET News.com. "It's just a matter of this was the first big thing (in terms of a major U.S. technology company merging with a foreign company) and people want to understand it."

One analyst said it was important for the policymakers to recognize the difference between cutting-edge research into computing technology and the commodity status of desktop and notebook PCs, which are based largely on standard parts and software.

"All the potentially spooky material lies with the other side of the house--the big iron and any kind of 'secret sauce' IBM has," said Roger Kay, an analyst at IDC. "Anything the PC group does is basically industry-standard."

Lenovo plans to take over the daily operations of IBM's PC business and would also be able to use IBM PC brands such as ThinkPad for five years. IBM will use its sales force to help sell Lenovo PCs and provide support for them.

The deal also says something about the global nature of businesses, Kay added. "It's the flip side of the Stringer taking over Sony kind of thing. It's just part of globalization, and people should get used to it."

Now that the federal review is behind it, the next step for the new Lenovo is to focus on executing the deal, Ward said.

Meet the PCs
Lenovo has already formed its senior executive staff and launched a number of integration teams. It's also evaluating a product strategy that would bring Lenovo-designed PCs from China to the rest of the world through both direct and indirect sales channels, Fran O'Sullivan, who will become Lenovo International's chief operating officer, said in an interview last week.

Lenovo's Tian Jino A desktop
Photo: Lenovo
Lenovo's Tian Jino A desktop has a
built-in VoIP phone.
Many of Lenovo's PCs, two of which IBM showed off last week at its PartnerWorld conference, have trendy features and look more like they might have been built by Apple Computer rather than a buttoned-down company like IBM. The Tian Jino A desktop, for one, looks like a 1950s radio and includes a built-in voice over Internet Protocol telephone.

Still, it won't be easy for Lenovo. Dell and HP aren't likely to cede market share willingly. Moreover, they can use any uncertainty over the Lenovo deal as leverage to dislodge IBM's corporate customers, analysts have said. At the same time, despite Lenovo's fresh-looking designs and the potential for the new company to offer lower prices, thanks to its greater scale, its brand name is untested outside China.

But now, after being relatively quiet during the CFIUS review, Ward said, "We're really going to start explaining to our customer base, to our partners and to (the news media) why we're so excited about this new company."

Reuters contributed to this report.