China's Lenovo Group has signed a definitive agreement
to acquire IBM's personal computing division.
Lenovo will pay $1.25bn (£647m) in cash and equity for the
business, which is expected to transform it into the world's number
three PC maker.
In addition to money, IBM will also take a 18.9% stake in
Lenovo. The cash and equity combined brings the total value of the
deal to about $1.75bn. It is expected to be completed in the second
quarter of 2005.
A deal between the two companies comes as no surprise. It is
been the talk of the PC industry since last week, when reports of
IBM's plans to sell its PC business appeared in The New York
Times.
However, few details were known about the nature of the deal and
its possible affect on IBM's existing PC customers until the
announcement today.
IBM and Lenovo said customers will see no change in product
availability and support, either while the deal is being completed
or afterward, while the PC operations of the two companies are
integrated. Beyond the integration, the impact is of the deal is
less clear.
Following the deal, the two companies will enter an alliance
under which IBM becomes the preferred services and customer
financing provider to Lenovo and Lenovo becomes the preferred
supplier of PCs to IBM, they said.
"Lenovo products will be co-branded for the next few years, to
use the power of the IBM ThinkPad brand with our existing and
future customers," said Mark Loughridge, chief financial officer of
IBM.
"We will have a phased implementation with products initially
using the IBM logo as the primary brand and transitioning over 60
months to an IBM endorsement of the Lenovo-branded products,"
Loughridge said.
Leasing, financing, warranty and maintenance services will be
provided by IBM Global Financing and IBM Global Services to Lenovo
customers, he said.
IBM is getting out of the PC manufacturing business because it
sees greater profits in the services market, Loughridge said.
"Our strategy is clear, to be the world-leader in high-value
solutions," he said. The deal "helps IBM focus on enterprise and
SME [small and medium-size enterprises] segments where we can best
use our value-add", Loughridge said.
Since 2002, IBM has spent about $9bn to acquire over 30
companies including Price Waterhouse Coopers Consulting. In the
same period, it has divested several businesses where it lacks
scale or market opportunities, such as its hard-disc drives and
displays units.
"The PC business is rapidly taking on the characteristic of the
home and consumer industry, which favours enormous economies of
scale focused on individual users and buyers. This agreement
continues IBM's strategic rebalancing of our portfolio on the
high-value enterprise market," Loughridge said.
The headquarters of Lenovo's new PC business will be in New York
and it will have major operations in North Carolina and in Beijing.
Stephen Ward, currently the senior vice-president and general
manager of IBM's personal systems group, will become chief
executive officer of Lenovo.
Yuanqing Yang, currently vice-chairman, president and chief
executive officer of Lenovo, will become chairman of Lenovo once
the deal is completed.
Lenovo will have about 19,000 employees following the
acquisition. Of these, about 10,000 are current IBM employees, of
which about 4,000 are based in China.
The deal requires the approval of Lenovo shareholders and
relevant regulatory authorities. Lenovo Holdings, Lenovo Group's
largest shareholder, has already agreed to vote in favour of the
transaction.
Martyn Williams and Paul Kallender write for IDG News
Service