Lenovo buys IBM PC business $1.75 B deal

In one of the biggest Chinese overseas acquisitions ever, China's largest
personal computer maker Lenovo Group Ltd has signed a definitive agreement to
acquire IBM's Personal Com-puting Division for $1.25 billion in cash and
stock.

The complex acquisition, which would be completed in the second quarter of
2005, would make Lenovo the third-largest PC maker in the world, behind Dell and
Hewlett-Packard. The company, which is presently China's biggest computer
maker with 27 percent market share, is also the biggest in Asia.

Announcing the deal in Beijing, Lenovo chairman Liu Chuanzhi said that the
com-pany was taking over IBM's desktop PC business, includ-ing R&D and
manufacturing.

The announcement follows media speculation about the deal. In a statement
issued by IBM's chairman and CEO Samuel Palmisano, the deal with Lenovo
strengthens IBM's ability to capture the 'highest-value opportunities' in
a rapidly changing industry.

"In Lenovo we have a partner with powerful com-petitive capabilities in
China and Asia and in consumer and desktop PCs. We have worked very care-fully
with Lenovo to put in place all the elements of a strong, successful, enduring
global alliance," Palmisano said.

Lenovo will be the prefe-rred supplier of PCs to IBM and will be allo-wed to
use the IBM brand, including its 'Think' brand for five years. The
arrangement will also enable IBM to offer a full range of personal com-puting
solutions to its enter-prise and small and medium business clients.

The JV is expected to ship around 12 million units based on 2003 numbers and
have annual revenue from PC sales of $12 billion. According to IDC figures for
2003, the combined unit market share of Lenovo and IBM's PC busi-nesses
worldwide is approxi-mately 8 percent. The transa-ction will dramatically streng-then
Lenovo's global presence in the fast-growing notebook PC marketplace.

As part of the strategic business alliance, IBM will provide marketing
support and demand generation ser-vices for Lenovo products through its existing
30,000 enterprise sales force, and through IBM.com as well. Also, Lenovo
products will also be sold through IBM PC specialists that will join the
company.

The agreement also paves way for Lenovo to have IBM Global Financing and IBM
Global Services, world's num-ber one IT services organiza-tion with powerful
existing enterprise channels, as its preferred partners for leasing and
financing services, and for warranty and maintena-nce services, respectively.

While the deal enables IBM to get out of the PC desktop and notebook business
and focus more on its high-margin computer services, software, server and
storage business, it would help Lenovo tackle intense competition on its turf.
It also makes Lenovo in the select club of Chinese manufacturers who have now
started going global by acquiring major brands.

On completion of the deal, Lenovo will also inherit 10,000 IBM employees, 40
percent of whom are already in China, while less than 25 percent of whom are in
the US-taking its overall employee strength to 19,000. The company expects to
shift its worldwide PC business headquarters to New York, with principal
operations in Beijing and Raleigh, North Carolina, and sales offices throughout
the world.

According to available information, while IBM's senior VP and GM of its
Personal Systems Group Stephen M Ward, Jr. will serve as the CEO of Lenovo
following completion of the transaction, Lenovo's vice chairman, president and
CEO Yuanqing Yang will serve as the chairman of post-transaction company.

CyberMedia News

New Delhi

Transaction Details

q As consideration for the transaction
IBM will receive at least US$650 million in cash and up to US$600 million in
Lenovo Group common stock, subject to a lock-up period expiring periodically
over three years. IBM will be Lenovo's second-largest shareholder, with an
18.9 percent interest in Lenovo. Additionally, Lenovo will assume approximately
US$500 million of net balance sheet liabilities from IBM.

q Lenovo will fund the cash portion of
the consideration through internal cash and debt. The equity issuance price will
be HK$2.675 per share and is based on the closing price as of December 3, 2004.

q The transaction is expected to be
completed in the second quarter of 2005 and requires the approval of Lenovo's
shareholders and review by relevant regulatory organizations. Lenovo Holdings,
Lenovo Group's controlling shareholder, has agreed to vote its shares in
favour of the transaction. It is the intention of IBM and Lenovo to secure
signed, local agreements after completion of additional legal requirements and
industrial relations processes where applicable in some countries outside the
United States.

q The PC manufacturing portion of the
International Information Products Company in Shenzhen, China, which is co-owned
by IBM and Great Wall, is included in the transaction; IIPC's IBM eServer
xSeries manufacturing there is excluded.

Lenovo-The company

Founded in 1984, Lenovo was the first company to introduce the home computer
concept in the People's Republic of China, and since 1997 has been the leading
PC brand in China and across Asia with annual revenues of approximately US$3
billion.

Lenovo Group is primarily engaged in the manufacturing and sale of desktop
computers, notebook computers, mobile handsets, servers and peripherals in
China. Lenovo brand PCs have been the best seller in China for seven consecutive
years, commanding a 27 percent unit share of China's PC market in 2003.
According to IDC Lenovo PCs ranked number one in the Asia Pacific (excluding
Japan) market with a 12.6 percent market share in 2003.

What partners can expect

q For next 18 months no change in
product roadmap, product availability or support

q No change in desktop or laptop brand
name

q Continued affiliation to
PartnerWorld program, receiving consistent marketing and sales resources,
training, certification and technical support

What they say

Sanjiv Bhavnani

Visesh Infotecnics Ltd

It's happy times for HP. IBM is a big brand. I doubt Lenovo can command
same respect among customers. It will be a Chinese company making PCs. But if
the customer needs shift we will be happy to cater to them. However, there is
one lesson here that companies should learn.

Gurjit Singh

OA Compserve

Market is over reacting. Most of the manufacturing today is anyway happening
in China. From the IT perspective there is no impact except that it reduces the
cost but from custo-mer's perspective there will be a huge impact as IBM is no
longer stamping its approval on the PCs and that makes it a Chinese product.

Ranjan Chopra

Team Computers

Its great! In China Lenovo is a strong company that competes with Dell. So,
the negative customer perce-ption of the PC being a 'Chinese good' will not
stick for long. I am very positive about this development. Probably with Lenovo
we will give Dell a run for its money.