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Lenovo's IBM deal to face US review

US state contracts could be completed by Chinese government

The US government is to conduct an extended review of Lenovo Group's planned acquisition of IBM's PC business to determine whether or not the deal threatens US national security interests, according to a report by The Wall Street Journal newspaper.

Earlier this week, three Republican congressmen sent a letter to US Treasury Secretary John Snow calling for an extended review of the $1.75bn deal between China's Lenovo and IBM. That request appears to have been granted, according to The Wall Street Journal report, which cited an unnamed source.

In that letter, the three congressmen – Henry Hyde, Duncan Hunter and Don Manzullo – expressed concerns that the IBM-Lenovo deal could transfer advanced technology and corporate assets to the Chinese government, along with licensable or export-controlled technology, and may result in some US government contracts involving PCs being fulfilled by the Chinese government.

Lenovo is China's largest PC maker and is listed in Hong Kong. However, Lenovo's Chinese parent company and largest shareholder is closely tied to the Chinese Academy of Sciences, a Chinese government institution in Beijing.

The extended review of the IBM-Lenovo deal will be conducted by the US Treasury Department's Committee on Foreign Investment in the United States (CFIUS), an interagency panel that is chaired by Snow. The review will last 45 days and result in a report that is submitted to the US president, according to the department's website. The president then has 15 days to announce the final decision, it said.

"Lenovo continues to cooperate with the routine review of this deal by all the regulatory bodies," said Angela Lee, a spokeswoman for Lenovo, in Hong Kong. Lee declined to comment on whether Lenovo had received formal notification that CFIUS intends to conduct an extended review of its deal with IBM.

A spokeswoman for IBM Asia-Pacific was not immediately able to comment on the report. Treasury Department officials could not be reached for comment.

While an extended review of the deal is a setback for Lenovo, the acquisition is unlikely to be blocked, said Helen Lau, an analyst at Celestial Asia Securities Holdings Ltd., in Hong Kong. "The US government won't totally block the deal," Lau said.

However, the US government may block the sale of IBM's PC R&D operations to Lenovo on national security grounds while allowing the rest of the deal to go through, Lau said. "Also, they may ask IBM to retain some of their (US) government clients," she said.

That outcome would not be good for Lenovo. The company needs IBM's R&D operations to strengthen its competitive position against rival Dell, Lau said. "Without this, I don't think [Lenovo] is in a very good position," she said.

Martyn Williams in Tokyo contributed to this story.

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