IBM-Lenovo deal said to get national security review

Could Chinese ownership of Big Blue's PC business lead to industrial espionage? A federal review board is looking into the possibility.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
3 min read
IBM's plan to sell its PC business to Lenovo Group may become a matter of national security.

The Committee on Foreign Investments in the United States, which reviews acquisitions of U.S. businesses by companies based outside the country, has shown concern that Chinese operatives might use an IBM facility for industrial espionage, the Bloomberg news agency reported Sunday, citing unnamed sources. The committee is made up of 11 U.S. government agencies, including the departments of Justice and the Treasury.

The report said that IBM and Lenovo were negotiating with the committee, chaired by the Treasury Department, which would need to give its approval for the deal in order for it to avoid a formal investigation and the need for clearance by President Bush.

IBM passes PC
torch to Lenovo

Read our complete
coverage of Big Blue's
$1.75 billion deal with
China's top PC maker.

In December, IBM announced its intent to sell its PC business to Lenovo, currently based in Beijing. The deal is valued at $1.75 billion.

An IBM representative said in an e-mail that the company is cooperating with all government agencies that must approve the deal.

"IBM has filed the required legal notice with the Committee on Foreign Investments," Ed Barbini, a company spokesman, wrote in the e-mail. "IBM is fully cooperating with all government agencies in their review of this transaction."

Representatives of the Treasury Department weren't immediately available for comment.

Still, IBM has cleared one other potential regulatory hurdle.

Earlier this month, the Federal Trade Commission indicated that it would not raise any objections to the Lenovo deal on the basis of how the sale might effect competition in the market.

The FTC 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. 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 HP.

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 has 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 reincorporate in the United States and locate its headquarters in Armonk, N.Y--the town that IBM calls home. 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.

CNET News.com's Martin LaMonica contributed to this report.