[A-List] US/China rivalry: IBM sale to Lenovo under review

["Michael Keaney" <michael.keaney@xxxxxx>]

Congress threatens IBM unit sale to Lenovo
By Stephanie Kirchgaessner and Edward Alden in Washington and Mure Dickie in
Beijing
Financial Times: January 27 2005

The acquisition of IBM's personal computer business by Lenovo, China's
biggest computer supplier, was thrown into doubt on Wednesday after
Republicans in Congress said it could threaten US security interests.

A trio of Republican committee chairmen led by Duncan Hunter, chairman of
the House armed services committee, called for a full security review of the
sale, warning that it could result in the transfer of US military-related
technologies to Beijing.

Lenovo's agreement last month to buy IBM's US-based PC division for $1.75bn
(£940m) would be the biggest overseas acquisition by a Chinese company.
But the Republicans want a full 45-day review by the committee on foreign
investment in the US, an inter-agency group that assesses the security and
economic risks of takeovers by foreign groups of US companies.

In a letter to John Snow, treasury secretary and CFIUS chairman, they said
the deal could also result in advanced US technology and corporate assets
falling into Chinese government hands. An extended review could force IBM
and Lenovo to begin negotiating changes to the deal to alleviate concerns.

"What needs to be done is proper checks by our government and the proper
regulatory authorities. The door is probably open if they satisfy everyone's
concerns," said a spokesperson for Mr Hunter.

If the US government were to block the transaction, it would be a heavy blow
to Lenovo's ambitions. It sees the deal as a way to establish itself as a
global brand, bringing the financial resources needed to match its rivals. A
US move to block the acquisition would also have implications far beyond
Lenovo. Both Beijing and other Chinese groups could see it as a signal that
the US could try to stop them moving into strategic businesses.

The opposition from Mr Hunter and Henry Hyde, chairman of the House
international relations committee, could pose a serious threat to the deal.
Mr Hunter who has influential allies within the Pentagon has long wanted to
strengthen national security reviews of foreign takeovers.

IBM appears to have been caught off-guard, and it is unclear why the sale of
relatively low-level technology should cause such a stir.

Bill Reinsch, president of the National Foreign Trade Council, which
represents US multinationals, said such questions were largely settled
during the final years of the Clinton administration, which determined that
national security concerns could only legitimately be raised by the sale of
high-level technology.

But Mike Wessel, a member of Congress's US-China Economic & Security Review
Commission, said: "You need to have a certain level of security,
particularly when there is a potential of helping the Chinese leapfrog our
technological prowess."

IBM said it was following "all the normal and routine procedures" in the
government's review. Lenovo was not immediately available for comment.