Posted on 01/26/2005 6:53:02 AM PST by pttttt
IBM's Lenovo Deal Faces U.S. Security Probe
Tue Jan 25, 2:59 PM ET
Business - NewsFactor
Elizabeth Millard, http://business.newsfactor.com
IBM's (NYSE: IBM - news) deal to sell off its PC unit to China-based Lenovo may hit a snag, as U.S. federal agencies decide whether the arrangement endangers national security.
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As part of the US$1.75 billion deal, Lenovo announced that it would send a cadre of Chinese computer experts and researchers to IBM's North Carolina facility.
The plan has prompted some members of the Committee on Foreign Investments in the United States (CFIUS) to voice concern about whether the researchers would be able to engage in industrial espionage while working in the U.S.
Star Chamber
The CFIUS is charged with examining corporate deals that involve foreign firms to determine whether any national security threats may arise.
Some of the agencies that play a part in the CFIUS are the Defense Department, the U.S. Trade Representative's office, and the Commerce Department (news - web sites). The organization is chaired by the Secretary of Treasury.
Currently, the CFIUS has not released an official decision about whether the Lenovo deal will need to be changed.
If the committee approves the partnership, IBM and Lenovo could avoid a formal investigation, as well as clearance by President George Bush (news - web sites).
Border Patrol
If the IBM and Lenovo deal is prohibited, it would not be the first time the government has blocked sales to Chinese firms, citing national security.
One high-profile example occurred in 2003, when Global Crossing was not granted approval to sell its telecommunications network to a Hong Kong-based company.
Although the Bush administration has worked to establish stronger economic ties with China, Yankee Group analyst Laura DiDio told NewsFactor that there is trepidation over security.
"China is a still a Communist nation," she said. "They're very closed, despite these deals, and they sell stuff to people we consider enemies. So there's a real fear here, and it's not unwarranted."
As the World Turns
A security probe would not necessarily kill the deal, according to DiDio. Instead, the administration could tweak the partnership's details, such as changing IBM's proposed 19 percent stake in Lenovo to 51 percent.
It also could dictate whether Lenovo could use U.S. facilities or establish a headquarters in New York, another recent proposal.
"Considering the global presence of IBM and how many defense contracts it has worldwide, I think there are valid concerns about the deal," said DiDio.
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