IBM poised to potentially cut US$1.5bn deal

7 Dec 2004

Chinese PC maker Lenovo is expected to pay about US$1.5bn in cash and shares for IBM’s PC business. It is understood that as part of a deal being brokered in advanced discussions, IBM would also get a 5pc share of Lenovo.

According to a report in this morning’s Financial Times, discussions between IBM and Lenovo are at a critical stage and could collapse, paving the way for the sale of the IBM unit to a rival suitor. Potential rivals to Lenovo in a bidding war would include Toshiba as well as US buy-out groups such as Bain Capital or Thomas H Lee Partners.

Taking Lenovo shares in a part-payment would allow IBM to retain an interest in a business that has been upstaged by more profitable arms such as servers and IT services. IBM, which invented the first PC in 1981, has also lost sway in the market to fall into third place globally behind icons such as Dell and Hewlett-Packard.

For Lenovo, access to IBM’s Think brand and logo will be crucial as traditional – even loyal – IBM laptop customers would be unwilling to shift to the lesser known Lenovo brand.

The brand is valuable because of its association with the ThinkPad series of laptops and it is reported that Lenovo is likely to gain the rights to use the IBM brand on the computers over a few years if it succeeds in buying the business.

By John Kennedy