Lenovo-IBM deal given US clearance

NEW YORK - Lenovo Group, China's largest personal computer maker, has won US government clearance for its US$1.25 billion ($1.7 billion) purchase of IBM's PC unit, overcoming security concerns.

IBM last month offered concessions that included blocking Lenovo's access to the identity of US Government customers and physically sealing off buildings in an office park the two companies will occupy after the sale. US officials had demanded the measures to limit the threat of industrial espionage.

The purchase will make Lenovo the world's third-largest PC maker. The deal allows New York-based IBM to jettison a money-losing business and gives Lenovo a foothold in the US PC market.

There are enough alternatives including Hewlett-Packard, Dell and independent assemblers called "white-box" makers for government agencies and corporations concerned about security, Blount said.

IBM shares, down 6.3 per cent this year, rose 22USc to US$92.35.

The Committee on Foreign Investment in the US decided to begin an investigation after an initial review raised security concerns.

However, the approval came before a 45-day review period was scheduled to end on March 14.

Lenovo will be a "great corporate citizen," said Stephen Ward, general manager of IBM's personal systems group, who will become the chief executive of Lenovo. Yuanqing Yang, vice chairman of Lenovo, will be chairman.

The deal will expand Lenovo's PC business fourfold, giving it a US$12 billion annual revenue.

Lenovo would also gain the rights to use IBM's brand for five years and a distribution and sales network covering 160 countries. IBM will be a reseller of the PCs under the purchase agreement.

"The benefit of the increased market so much outweighs a marginal loss of customers" incurred through national security concerns, analyst Blount said. "For IBM it's a win because they get a strong partner in the China market."

Because IBM is approved as a vendor by the US General Services Administration, Lenovo gains the US Government as a customer.

That access concerned members of the committee from the Homeland Security and Justice departments, who demanded that IBM protect any information the Chinese could use to bug or infiltrate computers used by US Government officials.

Officials also were concerned an IBM facility in Research Triangle Park, North Carolina, could be used by Chinese operatives to engage in industrial espionage.

A spokesman for Illinois Republican Representative Don Manzullo said: "My boss has economic concerns about IBM selling its PC division to a company owned by the Chinese Government.

"Based on the fact that China doesn't always play by the rules, such as manipulating its currency and subsidising companies, it could give Lenovo an unfair advantage."