IBM/Lenovo Acquisition
Ever since the first microcomputers in 1977 invented by Apple and IBM�s own version of the mini computer in the early 1980�s, the PC market has since become very competitive and a liability for those without the advantage that Dell or Hewlett Packard (HP) has. Dell Computer Company is currently number one in the PC Industry with an 18.2% market share; Hewlett Packard follows with 16.2% in comparison to IBM�s third place 5.2% market share. IBM lost millions of dollars for the last three and a half years and no longer believes that it can profit from the pc computer industry. Poor market conditions and the inability to maintain aggressive strategies forced IBM to discover alternate means for its pc division; after evaluating its external environment IBM decided to sell its PC unit on the market to the China based company Lenovo.
The Chinese market is growing rapidly and soon will surpass Japan, and hold the largest share of mainframes, software, and PC�s in the Asian industry. This is very appealing to IBM for a few reasons, if it sells its PC business to Lenovo it can recoup monies lost from prior unsuccessful years. Secondly, it will strengthen the Chinese economy by creating new jobs and trade between the two countries. Since IBM is a globally known company, its reputation for producing quality computers will influence consumers to purchase Lenovo products. In China, Lenovo is the top producer of personal computers providing them with an edge over Dell and HP in the foreign market; this is one of many reasons Lenovo wants to expand its PC business. Further expansion benefits Lenovo and one of their strategies is relocating its headquarters to New York City and trade its stock on NYSE granting it access to large amounts of American money.
The Deal between IBM and Lenovo was finalized when C.E.O Samuel Palmisano traveled to China first meeting with the Chinese government, then Lenovo executives. After business negotiations concluded, IBM accepted a $1.25 billion offer broken down into $600 million in Lenovo stock and $650 million in cash. Lenovo on the other hand will get licensing rights to IBM�s logo and the Think Pad Portable Computer for five years. Top management for IBM such as the senior vice president Stephen Ward will exchange titles by becoming C.E.O for Lenovo, and about four thousand IBM employees are in China to assist with operations will become employees of Lenovo.
The only dilemma with this deal being accomplished is that Lenovo doesn�t possess the cash to pay IBM Lenovo will have to borrow money to buy the IBM PC units. The Chinese government would become a major shareholder due to the fact that the Chinese company is going to be building mainframes for domestic corporations and educational institutions.
Lenovo instantly receives a competitive advantage in the Asian market because of IBM�s influence along with the Chinese government. Dell controls 18% of the worldwide PC market but for example, if they wanted to sell in China it would be extremely difficult because trade barriers and high tariffs could be put on Dell�s imports by the Chinese government to cut into Dell�s sales. Lenovo�s strategic intent is to cut into the profits of their direct competitor�s and will be highly successful because the government is a shareholder. Hewlett Packard and Dell corporations would more than likely withdraw from contending in the major Asian markets, although Dell manufactures its PC in a few Asian countries.
