Lenovo Gets Infusion of U.S. Cash

The Chinese company poised to take over IBM’s legendary PC business has received investments from three U.S. equity firms.

Texas Pacific Group (“TPG”), General Atlantic (“GA”) and Newbridge
Capital (“Newbridge”) are giving Lenovo Group a combined amount of $350
million as a strategic investment for its acquisition of IBM’s PC business, executives at Lenovo said Wednesday.

Lenovo will become the world’s third-largest PC maker behind Dell
and HP when the landmark $1.25
billion deal is completed sometime in the next three months.

Of the total amount, about $150 million will be used to finance the
acquisition. The rest will be added to Lenovo’s general working capital
and used for general corporate purposes, the company said.

“This agreement represents a strong vote of confidence in Lenovo’s
prospects
going forward as a global information technology leader,” Yuanqing Yang,
Lenovo’s current president CEO and chairman, said in a statement. “TPG,
GA and Newbridge also have strong understanding of the governance
structure of multinational operations as well as rich experience working
with IT investors. Their participation in the new Lenovo will further
ensure a smooth transition period and stable development in the future.”

TPG is investing $200 million, GA $100 million and Newbridge $50
million. But more than that, the three equity firms are gaining stock
in the company. The three investors together will own approximately 10.2
percent of Lenovo’s capital. After five years, when the warrants mature,
the investors have the potential of increasing that ownership to 12.4
percent.

The investment by the equity firms does alter IBM’s stake in Lenovo
to some extent. After everyone signs off on the paperwork, IBM will
receive approximately $800 million in cash and about $450 million in
Lenovo common shares. But now, IBM will hold a 13.4 percent ownership in
Lenovo instead of its previously stated 18.9 percent equity stake. IBM
will still retain its voting rights, Lenovo said.

IBM is still coming out ahead in the deal. Under a five-year
agreement, IBM will hold onto the licensing rights to ThinkPad and
ThinkCentre brands. In addition, IBM’s Global Financing and Global
Services will be preferred providers to Lenovo for leasing and financing
services as well as for warranty and maintenance services.

The investment firms got the green light to strike a deal with Lenovo
only after the U.S Treasury Department-chaired Committee on Foreign
Investment in the United States (CFIUS) reviewed the sale.

On March 9, the 11-member committee signed off on the transaction,
but not without making a few concessions including giving up access to
some of IBM’s U.S. government accounts including its vendor status with
the U.S. General Services Administration for government computers.

Lenovo will also be moving any IBM staff and operations it acquires
from IBM’s buildings in Raleigh, North Carolina and into Lenovo’s
U.S.-based facilities.

The concessions were made in part after members of the Department of
Homeland Security and the Justice Department raised concerns about a
sale and its impact on national security.

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