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Lenovo OKs PC Buy From IBM

Even as rumors and a new report swirled that U.S. regulators may take a harder look at the IBM/Lenovo PC deal, Lenovo Group's stockholders have overwhelmingly supported the personal computer maker's $1.75 billion ($1.25 billion in cash) deal to acquire IBM's PC business.

Meeting in Hong Kong Thursday, more than 99 percent of the shareholders voted to approve the deal currently scheduled to close in the second quarter, provided regulatory reviews pass muster.

Lenovo, China's largest personal computer maker, would become the world's number three PC manufacturer if the transaction meets U.S. approval.

The Federal Trade Commission has already ruled the deal does not violate U.S. antitrust laws. The last major hurdle appears to be gaining approval from the U.S. Committee on Foreign Investment in the United States (CFIUS), an interagency panel of security and economic officials under the auspices of the Treasury Department.

CFIUS has until Monday to approve the deal or extend the investigation another 45 days, according to the agency's Web site. Earlier this week, U.S. Reps. Henry Hyde (R.-Ill.), Duncan Hunter (R.-Calif.) and Donald Manzullo (R.-Ill.), claiming technology transfer and national security concerns, wrote a letter to Treasury Secretary John W. Snow requesting CFIUS extend the review.

The three lawmakers claim the deal may involve the transfer of sensitive U.S. technology and corporate assets to the Chinese government in addition to raising questions about the transfer of licensable or export-controlled technology transfers.

The Wall Street Journal, citing unnamed sources, reported Friday the panel would vote for the extension. After the extended 45-day review, CFIUS would send its recommendations to President Bush, who would then have 15 days to take action.

"Whether it jeopardizes the deal or not, it boils down to protectionism combined with a general distrust of China," Scott Wallsten, a senior scholar at the American Enterprise Institute, said. "These concerns generally don't have much merit."

Wallsten said PC's are basically a commodity in today's world marketplace.

"The tech transfer issue that it affects national security is just crazy," he said. "Often some strange things go on and they are not what they appear to be. It's hard to figure out what the real motive is."

The transaction creates the third-largest PC manufacturing company behind market leaders Dell and HP . According to the current terms of the deal, IBM is retaining an 18.9 percent equity stake in Lenovo.

The deal also establishes a five-year brand licensing agreement that names Armonk, N.Y.-based IBM as the preferred services and customer financing provider to Lenovo. In turn, Lenovo said it would supply IBM all the desktop and laptop PCs it needs when selling computers to its small and medium business clients.

Lenovo's new PC business includes IBM's "ThinkPad" brand notebook business and allows Lenovo to take a majority stake in the PC manufacturing portion of the International Information Products Company (IIPC) in Shenzhen, China, which is co-owned by IBM and Lenovo's rival Great Wall.

The deal does not include IIPC's IBM eServer xSeries manufacturing in China.

Wallsten said China in general and Lenovo specifically are "developing real fast and competing with American companies. Congress may think it gives them a leg up."



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