Lenovo Close to Deal for IBM's Low-End Server Business
Deal Could Be Announced as Soon as Thursday
Lenovo may purchase IBM's Low end server business
By
Updated Jan. 22, 2014 10:35 p.m. ET
A sale for IBM would come as its hardware business is eroding.
Bloomberg News
Lenovo Group Ltd.
0992.HK -1.34%
is close to a deal to buy International Business Machines Corp.'s
low-end server business, according to a person familiar with the
matter. A deal could be announced as soon as Thursday, people familiar
with the matter said.
Lenovo, Dell Inc. and Japan's
Fujitsu Ltd.
6702.TO -2.20%
have looked at buying IBM's server business since the company
revived a sales process for it that stalled last year, people familiar
with the matter said.
Lenovo shares were
halted on the Hong Kong stock exchange Thursday, pending an
announcement of a transaction, the company said without disclosing
details.
Lenovo last year had been in
talks to buy all or part of IBM's so-called x86 server business. Talks
broke down between the personal-computer maker and IBM over differences
in price. Lenovo put the value of the business at below $2.5 billion at
the time. Interested parties this time around were still valuing the
business at below $2.5 billion, said a person familiar with the matter.
Related
Low-end servers had churned out double-digit revenue gains, but their growth has slowed in the past few years.
Lenovo confirmed earlier this week it was in talks about a possible acquisition but didn't name the target.
For
Lenovo, which already outpaces its U.S. rivals in the personal-computer
market, an acquisition could help it compete against
Hewlett-Packard Co.
HPQ -0.20%
and Dell in servers as well. A purchase could help Lenovo secure a
new source of growth and profit at a time when demand for PCs is weak
globally.
This wouldn't be the first
deal for the companies: In 2005, Lenovo bought IBM's personal-computer
business for $1.25 billion.—at the time one of the biggest foreign
acquisitions ever by a Chinese company.
Last year, Lenovo considered a bid for struggling Canadian smartphone maker
BlackBerry Ltd.
BB.T +9.93%
, people at the time said.
A sale
for IBM would come as its hardware business—which houses computer
servers, storage gear and computer chips—is eroding. In its earnings
report Tuesday, the company reported its sharpest quarterly revenue
decline in more than four years.
Shares closed down Wednesday about 3.3% to $182.25.
A
sale of the server business would likely draw scrutiny from a U.S.
government committee that reviews foreign acquisitions on
national-security grounds. The Committee on Foreign Investment in the
U.S., or CFIUS, reviewed and approved the earlier Lenovo deal for IBM's
PC business, which was a major provider of laptops and other computers
to the U.S. government.
The committee
doesn't disclose the details of the cases it reviews, and it sometimes
requires the companies in a deal to mitigate perceived security risks to
the U.S.
"There may be national
security risks, depending on where and how the servers are used," said
Jonathan Gafni, president of consultancy Compass Point Analytics LLC and
former official with the Director of National Intelligence who worked
with CFIUS. "The Lenovo-IBM PC deal might provide a model for the U.S.
government to mitigate any national security risks relating to
[government] use of IBM's x86 servers."
The Treasury Department, which leads CFIUS, doesn't comment on cases it reviews except in special circumstances.
While
CFIUS reviews technical material relating to national security, other
parts of the U.S. government, including Congress, have expressed
political sensitivities to major acquisitions from China.
A
sale would fit IBM's strategy of moving upstream in the technology
industry. IBM has exited low-margin businesses such as the PC division
it sold to Lenovo and expanded in areas such as software and services,
where its technological might and consulting expertise offer better
profit potential. IBM, like other big technology companies, also is
stepping up its investment in cloud computing.
—William Mauldin
and Juro Osawa
contributed to this article.
and Juro Osawa
contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com
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