Lenovo restarts talks to buy IBM server unit: source

Tue Jan 21, 2014 11:42am EST
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NEW YORK/HONG KONG (Reuters) - China's Lenovo Group Ltd has resumed talks to buy International Business Machines Corp's (IBM) low-end server unit, a source familiar with the matter said, a purchase that would bolster its efforts to diversify beyond a shrinking PC market.

A deal for IBM's x86 servers, which power corporate data centers, fits in with Lenovo's attempts to remold itself as a growing force in mobile devices and data storage servers. It also helps IBM's shift away from hardware towards software and services.

The two companies failed to reach an agreement last year after differing on pricing. Media reports then put IBM's hopes at between $4 billion to $6 billion for the unit, while Lenovo was said to be only willing to offer $2.5 billion.

Analysts now estimate the sale of the IBM unit to Lenovo could be worth between $2.5 billion and $3 billion. That would make it the biggest ever deal in China's IT sector, outpacing Badu Inc's acquisition of 91 Wireless from NetDragon Websoft Inc for $1.85 billion last year.

"Everybody wins because even if IBM could double the profitability it's still not good enough for IBM. On the other hand, Lenovo doubling the server business margins is a good deal for Lenovo," said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein.

Lenovo, the world's biggest PC maker, said on Tuesday it was in preliminary talks about an acquisition. It declined to name the seller but said it was making the statement in response to reports about its potential acquisition of a server business.

It added that it had not entered into any definitive agreement and that no material terms had been agreed to.

An IBM spokesman said on Monday the company wouldn't comment on the matter.

Dell Inc, which went private in a $25 billion deal last year, has also been cited in media reports as a potential suitor for the business. A Beijing-based spokesman for Dell declined to comment.   Continued...

Lenovo tablets and mobile phones are displayed during a news conference on the company's annual results in Hong Kong May 23, 2013. REUTERS/Bobby Yip