Lenovo hopes cyber-trust issues won't derail IBM deal

Information security concerns in the United States may have a "negative impact" on Lenovo Group Ltd's ongoing $2.3 billion buyout of IBM Corp's x86 server unit, a top executive from the Chinese company said on Wednesday.

Chen Xudong, senior vice-president of Lenovo, told China Daily that worsening Sino-US cybersecurity trust issues may derail the deal with IBM.

"It is not inconceivable that someone could use (national security concerns) to make a fuss about the deal," Chen said, adding that Lenovo is ready and open to all required reviews from the US to make sure the agreement gets government approval before July.

"We are optimistic about the investigation process because we have no plans to hide anything," he said.

Chen's remarks came on the same day that a Bloomberg report came out saying that Lenovo and IBM have asked for more time for a national security review, which is required from the US government before the acquisition can take place.

Lenovo sought an extension of the review as early as January, the same month the acquisition was announced, according to Chen.

Bloomberg reported that the companies resubmitted the transaction for review by an interagency panel called the Committee on Foreign Investment in the United States to buy more time. The date of submission was not disclosed in the report.

IBM did not comment on the story. The Armonk, New York-based company is under pressure in China. Reports said the Chinese government will oust its high-end servers from the banking sector.

Analysts said getting acquisition approval from US regulators is always difficult for Chinese tech companies. Although Lenovo has been successful in the past, it has to be cautious in dealing with government agencies.

In 2005, Lenovo's $1.75 billion acquisition of IBM's PC unit passed muster in the US without a hitch.

"The IBM-Lenovo server deal may get more attention from the US government because x86 servers are widely used in key industries in the US, including banking, telecommunications and government agencies," said Gene Cao, senior analyst at Forrester Research Inc.

Lenovo Chief Executive Yang Yuanqing told Chinese media that he was well aware of the possible difficulties the company may encounter during the review process. Yang told China Daily soon after the acquisition announcement that Lenovo's "open attitude" will help the company prevail.

If the acquisition fails, Lenovo is likely to pay a breakup fee of roughly $200 million, double the typical amount, Bloomberg said in January, citing a source familiar with details of the deal.

Lenovo eventually agreed to take the risks because buying the server unit from IBM will bring it huge advantages in the market.

Lenovo will get access to IBM's server customers and business channels, an efficient way for the Chinese company to enter the global market, according to Cao.

Industry consultancy IDC estimated that Lenovo will become the world's third-largest x86 server provider and the biggest in China after the deal closes. The company is not currently among the top five in terms of global server market share.