CFIUS To Conduct Extended Review of Lenovo's Purchase of IBM's PC Business
The U.S. Government's Committee on Foreign Investments in the United States (CFIUS) will conduct an extended review of China-based Lenovo Group's planned $1.75 billion acquisition of IBM's personal computer (PC) business. The extended review by CFIUS will last 45 days and will result in a report submitted to President Bush on whether the sale threatens U.S. national security interests. The President will then have 15 days to announce a final decision on whether the transactions should proceed or not.
The Exon-Florio provision of U.S. law (Section 5021 of the Omnibus Trade and Competitiveness Act of 1988, which amended Section 721 of the Defense Production Act of 1950) gives the President the authority to suspend or prohibit any foreign acquisition, merger or takeover of a U.S. corporation that is determined to threaten the national security of the United States. The President can exercise this authority under Exon-Florio to block a foreign acquisition of a U.S. corporation only if he finds:
CFIUS, the organization designated by law to receive notices of foreign acquisitions of U.S. companies and to investigate whether an acquisition may implicate national security issues, is composed of representatives from a number of U.S. government agencies and is chaired by the Secretary of the Treasury. Other CFIUS members include representatives from the Departments of State, Homeland Security, Defense, Justice and Commerce, the Office of Management and Budget and the Council of Economic Advisers.
(1) there is credible evidence that the foreign entity exercising control might take action that threatens national security, and
(2) the provisions of law, other than the International Emergency Economic Powers Act do not provide adequate and appropriate authority to protect the national security.
Earlier this week, three members of Congress sent a letter to U.S. Treasury Secretary John Snow calling for an extended review of the IBM-Lenovo transaction. In their letter, they expressed concerns that the IBM-Lenovo deal could transfer advanced technology and corporate assets to the Chinese government, along with licensable or export-controlled technology, and may result in some U.S. government contracts involving PCs being fulfilled by the Chinese government.
The terms of the transaction call for IBM to receive at least $650 million in cash and up to $600 million in Lenovo Group common stock, subject to a lock-up period expiring periodically over three years. IBM will become Lenovo's second-largest shareholder, with an 18.9% interest in Lenovo. Additionally, Lenovo will assume approximately US$500 million of net balance sheet liabilities from IBM. Lenovo Group will locate its PC business worldwide headquarters in New York, with principal operations in Beijing and Raleigh, North Carolina, and sales offices throughout the world.