(Corrects spelling of law firm name to Stroock & Stroock &
Lavan from Strook & Strook & Lavan in paragraph 16)
By Diane Bartz
WASHINGTON Jan 30 U.S. officials are likely to
allow China's Lenovo Group to buy IBM's low-end server
business and Google Inc's Motorola Mobility handset
business if it agrees to concessions aimed at protecting U.S.
national security, experts said.
Computer maker Lenovo has advantages over other Chinese
companies that should help it overcome the mutual suspicion
between the United States and China over industrial spying and
cybersecurity, such as its track record of successful U.S.
acquisitions in the past. And importantly, it is not directly
controlled by China's government.
Even so, it could be in for a battle over its latest deals
with at least one lawmaker expressing concern.
Lenovo said on Wednesday it would acquire Motorola Mobility,
along with some 2,000 patents, for $2.91 billion. That news came
days after an announcement the company would purchase IBM's
low-end server unit for $2.3 billion.
The deals will be reviewed by the inter-agency Committee on
Foreign Investment in the United States, or CFIUS, to ensure
they do not threaten national security.
"We look forward to going through the regulatory process and
we're going to work with the regulators with an open and
transparent approach," Lenovo spokesman Brion Tingler said.
Lenovo has been through the secretive CFIUS process three
times before and has won approval each time, according to a
source familiar with the process.
The first was in 2005, when Lenovo bought IBM's ThinkPad
business in a deal that catapulted the company into the global
technology big leagues. In that case CFIUS approval came to the
dismay of Representative Frank Wolf, a Republican from Virginia
and a tough critic of China.
Wolf said he discovered after that approval that the State
Department had made plans to purchase Lenovo computers. "They
were not able to cancel the purchases but made sure that none of
them were used for anything," he said.
"I just think we have to be careful," said Wolf.
Lenovo also went through CFIUS reviews when it bought
Stoneware Inc to expand cloud solutions and formed a strategic
partnership with EMC Corporation. Both deals were
announced in 2012.
It is not known what security concessions - if any - CFIUS
wrung out of Lenovo in the previous transactions, but typical
measures include having a security officer, a security plan or
other steps aimed at preventing a foreign government from
influencing a company in a way that would put U.S. security at
risk, the expert said.
CFIUS may also require that only U.S. citizens handle
certain products and services or demand that certain products be
located only in the United States.
Lenovo has already been in touch with CFIUS about its latest
U.S. deals, as is typical, said sources familiar with the
PATENTS IN FOCUS
A typical CFIUS analysis will touch on two sides - what
threat may be posed by the foreign company involved and what
vulnerabilities are exposed by the purchase, said Anne Salladin,
a former Treasury official with CFIUS experience.
"I do think that both of these deals are likely candidates
for mitigation measures," said Salladin, who is now at the law
firm Stroock & Stroock & Lavan LLP.
Another former government official with CFIUS experience,
Jonathan Gafni, said the review of the Motorola Mobility deal
likely would not focus on handsets but on more complicated
Lenovo will receive more than 2,000 "patent assets" as part
of the transaction, the companies said, although it is not known
which ones will change hands. Gafni said regulators would want
to give them extra scrutiny.
"There are already a ton of Chinese handsets being sold in
this country," said Gafni, now with Compass Point Analytics. "I
think it could take some time to figure it all out, but I don't
see a big problem here."
In the end, experts said, Lenovo was likely to win CFIUS
"If there was a Chinese company that was well-positioned to
see this deal come off, it's Lenovo," said Jim Lewis, a security
expert with the think tank Center for Strategic and
International Studies. "They've done the dance before and they
know what the steps are."
CFIUS, which is headed by the Treasury Department, usually
takes 30 days to review simple deals, but may take an additional
45 days on more complicated transactions.
Of the 23 transactions CFIUS reviewed in 2012, 10 were
withdrawn and abandoned, according to the latest CFIUS annual
report. One Chinese transaction was blocked in 2012 - the
proposed purchase of an Oregon wind farm near a sensitive Navy
(Editing by Peter Cooney, Ros Krasny and Stephen Coates)