Lenovo's Acquisition of Ibm

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Table of Contents

1. Introduction 2
2. The Parties Involved 2
2.1 The Acquirer: Lenovo 2
2.2 The Target: IBM 2
3. The Acquisition 2
3.1 Development of Acquisition (Time Line) 2
3.2 Facts of Acquisition 2
3.3 Expected Problems from Acquisition 2
3.4 Underlying motivations/expectations for Lenovo’s Management 2
3.5 Underlying motivations/ expectations for IBM’s Management 2
4. Were Lenovo’s expectations met? 2
4.1 To become an international company with access to the global PC market 2
4.2 Aim to leverage IBM brand to gain marketplace traction 2
4.3 To leverage on acquired IBM’s management expertise 2
4.4 To achieve more cost-savings by tapping on IBM’s efficient supply-chain, sales and distribution network 2
4.5 Overall
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After many negotiations, the two companies nailed down the details for a long term partnership.

In the deal, Lenovo, which is partly owned by the government’s Chinese Academy of Sciences, would help IBM gain entry into the promising China market. In return, IBM would sell Lenovo PCs through its sales force and distribution network. In addition, IBM would provide services and financing for Lenovo PCs and allow Lenovo to use the IBM brand name for five years.

Mar 2005: The deal was also sweetened with private equity giants such as Texas Pacific, General Atlantic and Newbridge Capital, who invested a total of $350 million in Lenovo. IBM would then hold minority stakes of 18.9% in Lenovo. In order to address the concern that Lenovo’s executives may not be capable of running a complex global business, IBM’s top executives were also recruited to help manage the company.

May 2005: Completion of acquisition. The deal, which mainly consisted of IBM selling its PC group to Lenovo, was valued at $1.75 billion. Lenovo would pay $1.25 billion for the IBM PC unit and assume $0.5 billion worth of debts for IBM. This $1.25 billion was paid through $650 million cash and $600 million in securities. The acquisition made Lenovo the world’s third- largest PC business with a worldwide reach and a powerful brand name.

2007: Two years after the acquisition, Lenovo
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