China has given the green light on Lenovo's proposed $2.3 billion acquisition of IBM's low-end servers business, although the Chinese multinational company is still waiting for approval from United States regulators.
The anti-monopoly bureau of China's Ministry of Commerce gave a nod to Lenovo's plan to buy IBM's x86 server unit, following the European Union's stamp of approval on Lenovo's proposal to purchase Google's Motorola Mobility business for $2.9 billion. Earlier this week, Lenovo chief executive Yang Yuanqing said he was optimistic that both acquisitions will be completed by the end of this year. Doug Yang, a financial journalist based in China, says his sources close to IBM claim the Armonk, New York-based company is also intent on closing the x86 deal before the year closes.
"Both deals are under the approval process in the two countries and they are progressing," Yuanqing said at Lenovo's annual shareholder meeting in Hong Kong. "We hope to complete the two deals by year-end."
The chief executive added that he expects no problems with getting the IBM deal approved since the U.S. government and Army are long-time clients of Lenovo.
Lenovo first announced its plan to buy IBM's x86 business in January, almost a decade after it made another of its historic decisions to buy IBM's struggling ThinkPad unit for $1.76 billion. The announcement earlier this year stirred little controversy, but the time between January and this month has seen increasing tensions marked by Internet security issues between the U.S. and China.
The cybersecurity issues began with former National Security Agency (NSA) employee Edward Snowden's leaks about the American government's surveillance program and quickly escalated to China's endless string of cyber-spying accusations by the U.S. and U.S.-based companies. The continuous exchange of spats back and forth led to China banning the use of technology made by American companies. The U.S. responded by prohibiting the purchase of networking equipment manufactured by Chinese firms ZTE and Huawei.
Last month, a high-ranking Lenovo official told the China Daily that the rising tensions between Washington and Beijing could cut off progress made on the Lenovo-IBM deal. This came following reports that U.S. regulators were wary of allowing a Chinese company to acquire IBM's x86 server business because the U.S. government uses these servers in data centers that support the Pentagon's computer network. If the acquisition pushes through, there is the possibility of Chinese hackers breaking into the servers and accessing government top-secret information.
However, this isn't the first situation of its kind and arriving at a solution is not impossible. Last year, automotive company Wanxiang announced its planned acquisition of bankrupt battery maker A123 Systems, whose clients also included the American military. To win approval from U.S. regulators, Wanxiang compromised by deciding to leave out of the acquisition the unit that sells to the U.S. military. Lenovo may need similar adjustments for its acquisition of IBM's x86 business to push through.
