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Tue, Jan 25, 2005 - Page 12 News List

US concerned over IBM unit's sale to Lenovo

SECURITY Officials worry that China's Lenovo Group might use IBM facilities to engage in industrial espionage or use stolen technology for military purposes

BLOOMBERG

US regulators are raising national security concerns over IBM Corp's pending US$1.25 billion sale of its personal-computer business to China's Lenovo Group (聯想), people familiar with the matter said.

Members of the Committee on Foreign Investments in the US (CFIUS), including the justice department and Department of Homeland Security, worry that Chinese operatives might use an IBM facility in North Carolina to engage in industrial espionage, using stolen technologies for military purposes, said the people, who spoke on condition of anonymity.

IBM and Beijing-based Lenovo need the approval of the committee, which is chaired by the treasury department and includes 11 other federal agencies, to avoid a formal investigation and the need for clearance by US President George W. Bush. IBM and the government are negotiating the matter, which otherwise could scuttle the deal, the people said.

"IBM has filed a required notice with the Committee on Foreign Investments," said Edward Barbini, a spokesman for IBM.

Lenovo spokeswoman Alice Li, in a statement e-mailed to Bloomberg News, said: "Lenovo continues to fully cooperate with relevant authorities."

Chinese government officials in Beijing had no immediate comment.

"IBM's PC unit has been unprofitable over the last few years," said Jean-Marc Champagne, an associate director of institutional sales at SinoPac Securities Asia Ltd.

"There are a lot of doubts about how the sale will benefit Lenovo's bottom line," he said.

CFIUS, the committee which reviews takeovers of US companies by international buyers, previously has blocked acquisitions by companies with links to China.

In 2003, Global Crossing Ltd was forced to abandon a planned sale of its telecommunications network to Hutchison-Whampoa Ltd, the Hong Kong-based group controlled by billionaire Li Ka-shing (李嘉誠). The defense department and others on the committee refused to approve the transaction on national-security grounds.

The Lenovo sale cleared a US antitrust review this month.

Lenovo and IBM formally filed a notice seeking CFIUS clearance on Dec. 29, the people said. Under US law, if the committee hasn't approved a foreign takeover in 30 days, it must open a formal investigation and ultimately deliver the results to the president for a decision.

"Because of national-security concerns, we do not comment on matters that may be under review by the Committee on Foreign Investments," Treasury spokesman Tony Fratto said.

Most transactions submitted to CFIUS win swift approval, said James Bodner, who oversaw the defense department's national-security reviews when he was principal deputy undersecretary for policy under former secretary William Cohen.

"An extremely low percentage of CFIUS cases have ever gone to the investigative phase, and of those, half were rejected or withdrawn," said Bodner, now a senior vice president at the Cohen Group, a Washington-based consulting firm.

In its negotiations with the committee, IBM has discussed the possibility of implementing measures to address the security concerns over the facility, which is located in Research Triangle Park, the people familiar with the matter said.

The US recently sanctioned eight Chinese companies for exporting technology to Iran for use in a missile program, The New York Times reported last week. The newspaper said it was "unclear" whether the technology was "dual-use."

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