Lenovo Group to buy IBM’s server business for $2.3 billion

Lenovo Group Ltd today said it will buy IBM's low-end server business for $2.3 billion in cash and stock, as the Chinese personal-computer sought to expand its business for corporate clients beyond office PCs.

In a filing with the Hong Kong Stock Exchange today, Lenovo said that its payments would comprise a cash part worth $2.07 billion and the rest in shares to be issued to IBM, the report said.

The move comes following The Wall Street Journal reporting earlier in the week that Lenovo and IBM were close to striking deal on the server busines (See: Lenovo restarts talks to buy IBM's low-end server unit).

According to commentators, the acquisition was in keeping with the trend of increasing Chinese investment in US companies.

Research firm Rhodium Group said, the total value of US acquisitions by Chinese entities more than doubled last year from $6.54 billion in 2012 to $13.24 billion.

However there could be some bumps on the way before deal was done as US regulators could review any acquisition by a Chinese company of a US business tied to critical technology or national security.

Lenovo's $1.25 billion acquisition of IBM's PC business in 2005, had to undergo scrutiny by the US Congress and the US Committee on Foreign Investment, before it was finally cleared.

Meanwhile, Lenovo, the world's biggest personal computer maker, said today it expected to offer jobs to 7,500 IBM employees as part of its acquisition of the x86 server business.

According to Peter Hortensius, a senior vice president,  the acquisition would accelerate Lenovo's moves to expand beyond its traditional PC business.

Associated Press, quoted Hortensius as saying that the company saw a transformation coming from just being a PC company to being a mobile device, PC and enterprise server company. He added, this provided another strong leg for that strategy.

Lenovo had its own server business but according to Hortensius it was less than one-fifth the size of the IBM Corp unit. He added the acquisition would move Lenovo ahead five years in its plan to expand in servers, raising its global ranking among suppliers from No 6 to No 3 and enhancing its share of global server sales from 2 per cent to 14 per cent.

Lenovo displaced Hewlett Packard Co as the No 1 PC maker in the third quarter of last year, even as demand eroded. According to the company, it expected mobile devices to become the bulk of its business in coming years.