Lenovo to pay $200 mn less for IBM unit

Lenovo Group Ltd will pay $200 million less for International Business Machines Corp's (IBM) low-end server unit, with the transaction set to close this week, after it passed a review conducted during heightened tensions between the US and China, Bloomberg reported.

The final price would be $2.1 billion, down from the $2.3 billion as announced in January (See: Lenovo Group to buy IBM's server business for $2.3 billion), to reflect lower-than- projected inventories at the time of the 1 October closing, Lenovo spokesman Brion Tingler said today. He added, the transaction had not been restructured.

The deal was cleared by the Committee on Foreign Investment in the US, or CFIUS, in August. The review was conducted during a dispute between the world's two largest economies over cybersecurity after five Chinese military officials had been accused of stealing trade secrets and other information from US companies by US officials.

On deal completion, IBM would be rid of a less- profitable business, allowing it to focus on growing areas such as cloud computing and data analytics, while Lenovo would gain a larger piece of the global computing-hardware market.

The IBM deal is likely to trigger a close review partly because US agencies, including the Defence Department and the Department of Homeland Security, bought the IBM servers, according to Bloomberg Intelligence.

Meanwhile, IBM said in a press release, "IBM announced today that conditions for Lenovo's acquisition of IBM's x86 server business have been satisfied and the parties anticipate they will begin closing the transaction effective on 1 October, 2014. The acquisition will make Lenovo the third-largest player in the $42.1 billion global x86 server market.

IBM will divest to Lenovo its SystemX, BladeCenter and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking and maintenance operations.

IBM will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication and PureData appliances.

''With the close of the x86 acquisition, Lenovo will add a world-class business that extends our capabilities in enterprise hardware and services, immediately making us a strong number three in the global server market,'' said Yang Yuanqing, chairman and CEO of Lenovo. ''Now, our priorities are to ensure a smooth integration and deliver a seamless transition for customers.

"By combining Lenovo's global reach, efficiency and operational excellence with IBM's legendary quality, innovation and service, I am confident that we will have competitive advantages to help us drive profitable growth and build Lenovo into a global enterprise leader.''