24/01/2005 13:04
U.S. regulators are raising national- security concerns over International Business Machines Corp.'s pending $1.25 billion sale of its personal-computer business to China's Lenovo Group, people familiar with the matter said.
Members of the Committee on Foreign Investments in the United States, including the Justice Department and Department of Homeland Security, worry that Chinese operatives might use an IBM facility in North Carolina to engage in industrial espionage, using stolen technologies for military purposes, said the people, who spoke on condition of anonymity.
IBM and Beijing-based Lenovo need the approval of the committee, which is chaired by the Treasury Department and includes 11 other federal agencies, to avoid a formal investigation and the need for clearance by President George W. Bush. IBM and the government are negotiating the matter, which otherwise could scuttle the deal, the people said.
``IBM has filed a required notice with the Committee on Foreign Investments,'' said Edward Barbini, a spokesman for Armonk, New York-based IBM. ``IBM is fully cooperating with all government agencies in their review of this transaction.''
Fully cooperate
Lenovo spokeswoman Alice Li, in a statement e-mailed to Bloomberg News, said: ``Lenovo continues to fully cooperate with relevant authorities.'' Chinese government officials in Beijing had no immediate comment.
The company's shares closed 7.4 percent higher, the biggest one-day gain in four months, at HK$2.175 in Hong Kong. The stock has fallen 30 percent from a high of HK$3.125 on Nov. 15. It has declined as much as 24 percent since the purchase was announced on Dec. 8 and fell to an eight-month low of HK$2.025 on Jan. 21. IBM's PC business lost money in the 3 1/2 years through June 30.
``IBM's PC unit has been unprofitable over the last few years,'' said Jean-Marc Champagne, an associate director of institutional sales at SinoPac Securities Asia Ltd. ``There are lot of doubts about how the sale will benefit Lenovo's bottom line.''
CFIUS, the committee which reviews takeovers of U.S. companies by international buyers, previously has blocked acquisitions by companies with links to China.
Antitrust Review
In 2003, Global Crossing Ltd. was forced to abandon a planned sale of its telecommunications network to Hutchison- Whampoa Ltd., the Hong Kong-based group controlled by billionaire Li Ka-shing. The Defense Department and others on the committee refused to approve the transaction on national-security grounds.
The Lenovo sale cleared a U.S. antitrust review this month. Lenovo and IBM formally filed a notice seeking CFIUS clearance on Dec. 29, the people said. Under U.S. law, if the committee hasn't approved a foreign takeover in 30 days, it must open a formal investigation and ultimately deliver the results to the president for a decision.
``Because of national-security concerns, we do not comment on matters that may be under review by the Committee on Foreign Investments,'' said Treasury spokesman Tony Fratto.
The committee never says publicly whether it's studying a certain transaction or reveals any decisions it takes.
Swift Approval
Most transactions submitted to CFIUS win swift approval, said James Bodner, who oversaw the Defense Department's national- security reviews when he was principal deputy undersecretary for policy under former Secretary William Cohen.
``An extremely low percentage of CFIUS cases have ever gone to the investigative phase, and of those, half were rejected or withdrawn,'' said Bodner, now a senior vice president at the Cohen Group, a Washington-based consulting firm.
In its negotiations with the committee, IBM has discussed the possibility of implementing measures to address the security concerns over the facility, which is located in Research Triangle Park, the people familiar with the matter said.
The U.S. recently sanctioned eight Chinese companies for exporting technology to Iran for use in a missile program, the New York Times reported Jan. 18. The newspaper said it was ``unclear'' whether the technology was ``dual-use.''
The concerns over the Lenovo deal underscore a broader debate over the U.S. government's dealings with China. While U.S. officials such as Treasury Secretary John Snow have called for closer ties between the two countries to foster trade, lawmakers such as Republican Senator James Inhofe of Oklahoma have raised objections to embracing China for security reasons.
'Vanguard Deal'
Lenovo is 57 percent controlled by Legend Group, which was established in 1984 by the Chinese Academy of Sciences, a government institution. Lenovo said Dec. 7 that it agreed to buy the IBM unit in a transaction that would create the world's third- largest PC-maker.
``This is a vanguard deal -- the first major Chinese acquisition of a Fortune 100 company,'' Bruce Rosenthal, a merger attorney at Nixon Peabody LLP in New York, said in an interview at the time. ``It's a harbinger of deals to come.''
IBM had a net loss of $139 million on sales of $5.22 billion in the six months ended June 30. IBM shares have fallen 3.9 percent since then, including a 62-cent decline to $92.38 in New York Stock Exchange composite trading Jan. 21.
Also at stake in the deal are about $18 million in investment-banking fees for Goldman Sachs Group Inc. and Merrill Lynch & Co., based on Bloomberg estimates. Merrill has advised IBM and Goldman worked for Lenovo.
Members of the Committee on Foreign Investments in the United States, including the Justice Department and Department of Homeland Security, worry that Chinese operatives might use an IBM facility in North Carolina to engage in industrial espionage, using stolen technologies for military purposes, said the people, who spoke on condition of anonymity.
IBM and Beijing-based Lenovo need the approval of the committee, which is chaired by the Treasury Department and includes 11 other federal agencies, to avoid a formal investigation and the need for clearance by President George W. Bush. IBM and the government are negotiating the matter, which otherwise could scuttle the deal, the people said.
``IBM has filed a required notice with the Committee on Foreign Investments,'' said Edward Barbini, a spokesman for Armonk, New York-based IBM. ``IBM is fully cooperating with all government agencies in their review of this transaction.''
Fully cooperate
Lenovo spokeswoman Alice Li, in a statement e-mailed to Bloomberg News, said: ``Lenovo continues to fully cooperate with relevant authorities.'' Chinese government officials in Beijing had no immediate comment.
The company's shares closed 7.4 percent higher, the biggest one-day gain in four months, at HK$2.175 in Hong Kong. The stock has fallen 30 percent from a high of HK$3.125 on Nov. 15. It has declined as much as 24 percent since the purchase was announced on Dec. 8 and fell to an eight-month low of HK$2.025 on Jan. 21. IBM's PC business lost money in the 3 1/2 years through June 30.
``IBM's PC unit has been unprofitable over the last few years,'' said Jean-Marc Champagne, an associate director of institutional sales at SinoPac Securities Asia Ltd. ``There are lot of doubts about how the sale will benefit Lenovo's bottom line.''
CFIUS, the committee which reviews takeovers of U.S. companies by international buyers, previously has blocked acquisitions by companies with links to China.
Antitrust Review
In 2003, Global Crossing Ltd. was forced to abandon a planned sale of its telecommunications network to Hutchison- Whampoa Ltd., the Hong Kong-based group controlled by billionaire Li Ka-shing. The Defense Department and others on the committee refused to approve the transaction on national-security grounds.
The Lenovo sale cleared a U.S. antitrust review this month. Lenovo and IBM formally filed a notice seeking CFIUS clearance on Dec. 29, the people said. Under U.S. law, if the committee hasn't approved a foreign takeover in 30 days, it must open a formal investigation and ultimately deliver the results to the president for a decision.
``Because of national-security concerns, we do not comment on matters that may be under review by the Committee on Foreign Investments,'' said Treasury spokesman Tony Fratto.
The committee never says publicly whether it's studying a certain transaction or reveals any decisions it takes.
Swift Approval
Most transactions submitted to CFIUS win swift approval, said James Bodner, who oversaw the Defense Department's national- security reviews when he was principal deputy undersecretary for policy under former Secretary William Cohen.
``An extremely low percentage of CFIUS cases have ever gone to the investigative phase, and of those, half were rejected or withdrawn,'' said Bodner, now a senior vice president at the Cohen Group, a Washington-based consulting firm.
In its negotiations with the committee, IBM has discussed the possibility of implementing measures to address the security concerns over the facility, which is located in Research Triangle Park, the people familiar with the matter said.
The U.S. recently sanctioned eight Chinese companies for exporting technology to Iran for use in a missile program, the New York Times reported Jan. 18. The newspaper said it was ``unclear'' whether the technology was ``dual-use.''
The concerns over the Lenovo deal underscore a broader debate over the U.S. government's dealings with China. While U.S. officials such as Treasury Secretary John Snow have called for closer ties between the two countries to foster trade, lawmakers such as Republican Senator James Inhofe of Oklahoma have raised objections to embracing China for security reasons.
'Vanguard Deal'
Lenovo is 57 percent controlled by Legend Group, which was established in 1984 by the Chinese Academy of Sciences, a government institution. Lenovo said Dec. 7 that it agreed to buy the IBM unit in a transaction that would create the world's third- largest PC-maker.
``This is a vanguard deal -- the first major Chinese acquisition of a Fortune 100 company,'' Bruce Rosenthal, a merger attorney at Nixon Peabody LLP in New York, said in an interview at the time. ``It's a harbinger of deals to come.''
IBM had a net loss of $139 million on sales of $5.22 billion in the six months ended June 30. IBM shares have fallen 3.9 percent since then, including a 62-cent decline to $92.38 in New York Stock Exchange composite trading Jan. 21.
Also at stake in the deal are about $18 million in investment-banking fees for Goldman Sachs Group Inc. and Merrill Lynch & Co., based on Bloomberg estimates. Merrill has advised IBM and Goldman worked for Lenovo.