This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

[video] The Deal: Lenovo Strikes $2.3B Deal For IBM Server Biz

Stocks in this article: IBM

NEW YORK (TheStreet) The second time can also be a charm: Chinese personal computer maker Lenovo on Thursday, Jan. 23, agreed to buy the low-power server business of IBM (IBM) for $2.3 billion, two days after confirming it had entered talks.

Lenovo, of Beijing, said it would pay about $2 billion in cash and the remainder in shares for IBM's x86 server business as it continues to expand its hardware activities to remain the world's biggest computer maker.

"With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long-term," said Lenovo chairman and CEO Yang Yuanqing in a statement.

Lenovo has used acquisitions to surpass rivals such as Dell  and Hewlett-Packard (HPQ) in the personal computer space. The surge began with the $1.8 billion purchase of IBM's personal computer division in 2005. In 2011 it expanded with the $660 million purchase of German computer maker Medion.

The Chinese buyer said it expected to take on 7,500 current IBM employees in Raleigh, N.C., Shanghai, Shenzhen and Taipei. The successful offer follows talks last year that ended when the companies couldn't agree on a price.

The auction reportedly also caught the interest of Tokyo-based Fujitsu  and Round Rock, Texas-based Dell.

IBM is moving away from its traditional hardware business to focus on experimental technologies and cloud-based products, which allow users to store files and data at remote locations. The files and data can then be accessed from nearly any device anywhere in the world.

The Armonk, N.Y.-based seller said it will invest $1.2 billion to expand its global cloud computing business and another $1 billion to develop its Watson experimental computing activities.

Unloading the low-power server business will allow the company to focus on more profitable businesses. In the final quarter of 2013, sales at its server business slipped 26% over the fourth quarter of 2012 to $4.3 billion. Overal, sales fell 5% at the company at the end of 2013 to $27.7 billion.

Lenovo shares closed 1%, or HK$0.14, lower at HK$10.32 ($1.30) in Hong Kong.

The deal is likely to trigger a review by the Committee on Foreign Investment in the U.S., which has recently played a critical role in several high-profile deals involving China. The panel, best known as CFIUS, cleared Lenovo's initial purchase of IBM's PCs but may take a different view on servers since they are also used by government agencies or sometimes placed near sensitive government and military sites.

CFIUS' biggest concern is keeping espionage technology out of seemingly benign equipment. It recently required Softbank  to restrict the purchase of third-party technology it might otherwise buy from China's Huawei Technologies Co. Ltd. as a condition of its $20 billion acquisition of a majority of Sprint (S).

The committee has always been wary of Huawei, which in 2011 decided to unwind the completed acquisition of part of server developer 3Leaf Systems after CFIUS objections.

After repeated defeats, Huawei last year said it would no longer try to buy into the U.S. - the government has accused the company of close links with China's military.

Lenovo turned to Goldman Sachs Group and Credit Suisse  for financial advice with Cleary Gottlieb Steen & Hamilton providing counsel.

IBM took financial advice from Bank of America Merrill Lynch with counsel provided by Cravath, Swaine & Moore.

-- Written by Andrew Bulkeley in New York

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs