IBM-Lenovo Transaction Faces Extended Review in the US

The Committee on Foreign Investments in the United States (CFIUS) has decided on national security grounds to extend its review of IBM Corp's proposed $1.75 billion deal with Lenovo Group Ltd (Lenovo), China's largest PC manufacturer. CFIUS is an inter-agency committee chaired by the US Secretary of the Treasury that is responsible for implementing the so-called "Exon-Florio" amendment of 1988 which authorized review powers over investments that might threaten US national security. In December, IBM announced that it had agreed to sell its PC business to Lenovo, including the right, for five years, to use such well-known IBM brands as ThinkPad. IBM will obtain an 18.9 percent stake in Lenovo, which will reincorporate in the US. If it closes, the deal is expected to make Lenovo the third largest PC manufacturer in the world. CFIUS, which usually reviews and approves acquisitions of US businesses by foreign companies within a 30-day time frame, called for an extended investigation to address the national security implications raised in this case. In particular, CFIUS was concerned that Chinese operatives might use an IBM facility for industrial espionage, and were also interested in taking a closer look at what technologies will be transferred from IBM to Lenovo. While some observers believe there is little to be concerned about in terms of national security, as the deal involves the sale of a commodity business, others are firmly of the opinion that this sort of scrutiny is warranted given the size of the business transferred and the history between the Chinese and US governments. The CFIUS investigation will carry over a maximum of 45 days. Once approved by CFIUS, the deal must receive Presidential clearance. For related news reports, see: http://makeashorterlink.com/?V22751E6A; http://makeashorterlink.com/?Y13723E6A; and http://makeashorterlink.com/?A55732E6A. Summary by: Rosa Kim