Lenovo Said to Have Beaten Fujitsu to IBM Deal After Dell Passed

Lenovo Said to Have Beaten Fujitsu to IBM Deal After Dell Passed

Lenovo Group Ltd. (992), which agreed to buy International Business Machines Corp. (IBM)’s low-end server unit yesterday, beat out prospective bidder Fujitsu Ltd. (6702) because that company would have needed several more weeks to conduct due diligence, a person with knowledge of the negotiations said.

Fujitsu expressed a willingness to pay more than the $2.3 billion Lenovo offered, though it wasn’t yet ready to make a firm bid, said the person, who asked not to be named because the talks were private. Dell Inc., seen as a third potential bidder, was never serious about making an offer, the person said.

IBM, eager to sell the server division amid slumping demand for computer hardware, wanted to complete the deal quickly — rather than waiting additional time for Fujitsu to finish its review, the person said. Holding out for a better deal could have backfired, especially since the business has been hurting IBM’s performance, said Laurence Balter, chief market strategist at Oracle Investment Research in Maui, Hawaii.

“The longer they waited, the more painful it would be to hold on to that unit,” Balter said in an interview. “The more doors they knock on, the lower the price is going to be.”

Fujitsu expressed interest in the server business after earlier talks between IBM and Lenovo broke down last year, the person familiar with the matter said. Lenovo rekindled negotiations in November, culminating in yesterday’s announcement. IBM was concerned that if it waited for Fujitsu and that deal fell through, it would have less leverage going back to Lenovo, the person said.

Brion Tingler, a spokesman for Beijing-based Lenovo, declined to comment on other suitors or competing bids, as did IBM’s Jeff Cross, Dell’s David Frink and Fujitsu’s Sean Nemoto.

‘Quite Confident’

While the deal with Lenovo is likely to draw a national-security review by the U.S. government, IBM and Lenovo expect to clear regulatory hurdles. That confidence bolstered IBM’s attitude that Lenovo’s offer was more of a sure thing than Fujitsu’s, the person said. Still, the companies expect regulators to ask for concessions before approving the transaction, and that may include sending some government work to rival companies, according to the person.

“We’re quite confident of a positive outcome,” Christopher Padilla, IBM’s vice president for government programs, said in an interview yesterday. The two companies have been through the process before: IBM sold its personal-computer business to Lenovo in 2005 for $1.25 billion. That transaction was cleared after a monthlong investigation.

Market Share

Fujitsu could have used IBM’s servers, which run on Intel Corp.’s x86 chip technology, to bolster its own x86 lineup. IBM was the third-largest seller of x86 servers in the third quarter, trailing Hewlett-Packard Co. and Dell, according to IDC. It sold $1.21 billion worth of the machines in the period, accounting for 13 percent of the industry’s $9.52 billion total.

Lenovo’s earlier talks with IBM had broken down in May over price, a person familiar with the situation said at the time. The division was originally valued at $2.5 billion to $4.5 billion, more than what Lenovo wanted to pay.

While IBM shopped the server division to Dell, that company didn’t want to make a bid, the person said. Dell is struggling with its own sales slump and went private last year after a $24.9 billion buyout.

Under the agreement announced yesterday, Lenovo is offering about $2 billion of cash, with the rest coming in stock. Lenovo also will help resell some IBM equipment. That could give the Armonk, New York-based company fresh inroads into China, a market where it’s seen sales slip, Mark Moskowitz, an analyst at JPMorgan Chase & Co., said in a report.

“Given IBM’s recent weakness in China, we believe Lenovo’s presence in the region could help IBM regain momentum there,” he said.

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: