Lenovo Acquisition of IBM PC.

By Ajakumbi Baba Usman

Introduction to Lenovo Group Ltd.

Established in 1984, by 11 employees, with total capital of 25,000 U.S. dollars Changed name from Legend to Lenovo for globalization purposes
---"For overseas markets, Lenovo will be used alone," said the firm

Owner of IBM PC brand The third-largest computer maker on the world scale The dominant Chinese computer marketer for over 10 years.

Important Records of Lenovo

1984With an initial capital outlay of only RMB200,000, (US$25,000) Lenovos founding chairman Liu Chuanzhi, together with 10 like-minded colleagues, launches the New Technology Developer Inc. (the predecessor of the Legend Group) funded by the Chinese Academy of Sciences. 1988Legends Chinese-character card receives the highest National Science-Technology Progress Award in China. Legend Hong Kong is established. 1996Legend becomes the market share leader in China for the first time. 1999Legend becomes the top PC vendor in the Asia-Pacific region and heads the Chinese National Top 100 Electronic Enterprises ranking. 2004Lenovo becomes an Olympic worldwide partner. It is the first Chinese company to become a computer technology equipment partner of the TOP. 2005Lenovo completes the acquisition of IBM's Personal Computing Division, making it a new international IT competitor and the third-largest personal computer company in the world. 2006Lenovo introduces the first dual-core ThinkPad notebook PCs, improving productivity and extending battery life for up to 11 hours.

Products

HomeProducts Desktop PCs Tianyi notebooks Xuri notebooks Inkjet printers Cameras MP3 Players

Commercial Products Desktops Notebooks Scanners LaserJet printers Servers Super computers

Cell Phones Mobile handsets

*Source: IDC Worldwide Quarterly PC Tracker 4Q05. PC includes desktops, portables and x86 servers

Lenovo Company Structure

IBM Personal Computing Division

Established in 1981, creator of personal computer $9B 2003 revenue; 10,000 employees in PCD and supporting operations #2 in WW commercial notebooks revenue Undisputed leader in enterprise PC design, business productivity, and lowest total cost of ownership Enterprise and Mid-market strength (15% share total client) Client, notebook and SMB double-digit growth, outpacing industry ThinkPad notebooks have won over 1,000 industry awards 100-million PCs shipped

Merger and Acquirement

The most important measure for most ambitious companies is to expand its market shares. To form its new strengths as soon as possible. A good sample in globalization is obtaining IBM PC Division through M&A.

Why ?
No future for the PC Division within IBM.
- Bringing corporate margins down.

- Infrastructure costs

PCs require economies of scale

- IBM PCD + Lenovo ( a top global player with volumes to compete ) -no redundancy

Legend wanted to be global IBM wanted to have a strong partner to keep access to PCs. Power of the ThinkPad brand

A Perfect Fit between Complementary Organizations

Premium Global PC Brand

Most recognized technology brand globally Leader in business productivity and lowest total cost of ownership Leading technology enhanced notebook product offering

#1 IT Brand in China

Most recognized technology brand in China Differentiated consumer/small business and extensive retail network Low cost infrastructure and manufacturing scale

Enterprise / Mid-Market Expertise

Consumer / Small Business Expertise

Notebook Leader

Efficient Operational Platform

Global Sales, Financing, Fulfillment and Service Network

Global sales network with financing, fulfillment and service support

Synergy in Values
Dedication to every clients success Serving customers Innovative and can do spirit Accuracy and truth-seeking Trust and personal responsibility in all relationships Trustworthiness and integrity

Innovation that matters for our company and for the world

Customers

Innovation
Integrity

10

Managing cultural gap

Chinese dont tolerate lateness Dual Headquarter issue. Nobody Picked the Chinese executives After the deal: Educate project members the two cultures English as official language CEO from IBM, Chairman from Legend.

Lenovos Global Operations

Paris RTP Mexico

Hungary Beijing Xiamen Shenzhen Japan Shanghai Huiyang

Principal Operations Research Centers Sales Headquarters

Sydney

Manufacturing Centers

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RISKS INVOLVED FOR LENOVO AND IBM

Cave-out-of IBM PC from IBM Lack of financial transparency Financial dependence of IBM PC on its parent Integration Risks: Cultural and operational Political risk Competitive response risk Brand risk

Achievements in 1st year of new Lenovo:

Lenovo Launched Lenovo in 65+ countries, with no disruption in deliveries and support. Retained a huge majority of our customer base . Established 2 innovation centres (Raleigh (NC) and Beijing) Retained 98% of employees. launched cultural gap reduction. Introduced new products including the very successful X41T tablet convertible Increased operational efficiencies by combining the Think and Lenovo divisions. Gained share globally despite absence from consumer segment in Europe, NA. Gained share in the 4 key emerging countries: China, India, Brazil, Russia. Doubled the revenues of the mobile telephony division.

FUTURE SUCCESS
Create strong Image of quality and innovation outside China. Build more economies of scale and purchase power Become fast leader in emerging markets Protect and keep developing successful IBM brands Combine two cultures into a single company Reduce structural cost outside China.
so far, so good. but time will tell

Ownership
Chinese Academy of Sciences
65%

Employees Shareholding Society

35%

Lenovo Holdings (Private)

IBM

Public Shareholders

Investor Group TPG, GA, NC

43,2%

13,4%

33,2%

10,2%

Lenovo Group Ltd. (HKSE Listed)

Transaction Summary
Lenovo acquires IBM PC operations
IBM: ownership stake, long-term alliances with the new Lenovo in sales, services and financing

The new Lenovo

Ownership

IBM

Lenovo
Public
36%

Lenovo Holdings
45%

IBM
19%

IBM Sales IBM Services

IBM Financing
IBM IT 17

The new Lenovo

(Lenovo + IBM PC Business)

Summary: Lenovo-IBM A Marriage Across 12 Time Zones

Lenovo
$3b revenues 27% of Chinese Market No. 8 global PC maker Founded 1984, HK listed 1994

IBM PC Division
$10b revenues (IBM total: $96b) 8% of global market No. 3 global PC firm IBM founded 1911

$1.75b deal: 600m equity (19% stake), $650m cash, take over $500m liabilities
Lenovo takes over IBM PC Division (announced 8 Dec 2004, completed 1 May 2005) Right to use IBM brand name for 5 yrs IBM provides sales and support services IBM will be preferred vendor for financing and maintenance services 10,000 IBM employees join Lenovo

The End
Thank You.

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