Lenovo Group Ltd. (992), China’s biggest maker of personal computers, offered to buy control of Germany’s Medion AG (MDN) for 466 million euros ($671 million) in its biggest acquisition since the purchase of International Business Machines Corp. (IBM)’s PC business more than six years ago.
The Chinese company will acquire a 37 percent stake from Medion Chairman Gerd Brachmann for 13 euros a share via cash and stock, and will extend the cash offer to remaining shareholders, Lenovo said today. Brachmann will keep an 18 percent holding. Medion jumped as much as 20 percent in Frankfurt trading.
The deal will help the maker of Thinkpad laptops surpass Apple Inc. (AAPL) in PC sales in western Europe, as Lenovo steps up expansion outside China to win market share from Hewlett-Packard Co. (HPQ), Dell Inc. (DELL) and Acer Inc. (2353) Lenovo may acquire more companies after the Medion transaction, which follows plans this year to form a venture with Japan’s NEC Corp. (6701), Chief Executive Officer Yang Yuanqing said.
“The acquisition is a longer-term, strategic move,” said Dennis Lam, who rates Lenovo shares “hold” at DBS Vickers Ltd. in Hong Kong. The deal will strengthen the consumer operations of Lenovo, whose business is now more focused on sales to corporate customers, Lam said.
Medion AG rose as much as 2.25 euros to 13.30 euros and traded at 13 euros as of 2:27 p.m. in Frankfurt. The increase narrowed the stock’s losses this year to 3.8 percent. The shares are still 80 percent off their peak in September 2000.
Lenovo, which makes about half its sales from China, fell 3.3 percent to HK$4.43 at the close of trading in Hong Kong.
“I don’t see the possibility that Lenovo would raise the offer,” Medion Chief Financial Officer Christian Eigen said in a telephone interview. “There just wasn’t more to get out of them.” He said he will sell his 75,000 shares to Lenovo.
Eigen said Medion had been in talks with Lenovo for “several weeks” and that the company had been on the lookout for cooperation partners since the third quarter last year.
The offer is 22 times Medion’s projected earnings per share, based on the average analyst estimate compiled by Bloomberg. Lenovo trades at about 16 times estimated earnings.
“Acquisitions are a good tool for us, not only to grow, but to build foundations,” Yang said in a phone interview today. Lenovo will “absolutely” consider making more purchases, he said.
Hewlett-Packard accounted for 17.6 percent of the global PC market last quarter, declining from 18 percent a year earlier, according to researcher Gartner Inc. Lenovo, the fourth biggest, increased its share to 9.7 percent from 8.2 percent, while Taipei-based Acer dropped to 12.9 percent from 14.6 percent.
The purchase will help Lenovo boost its market share in Germany to 14 percent, Milko Van Duijl, senior vice-president at Lenovo’s mature markets division, said in a phone interview. After the acquisition, Lenovo will become the fifth-biggest PC vendor in western Europe, displacing Apple, he said.
Lenovo last week reported fourth-quarter profit that tripled, beating estimates, after increasing sales to businesses in the U.S. and Europe. Stronger orders for office computers have helped Lenovo and Dell post better-than-expected earnings as slowing demand from consumers weakened sales at HP and Acer. The Chinese company is stepping up a challenge to Apple by offering smartphones and tablet devices, and plans to enter the game-console market in the second half.
J Sainsbury, Aldi
Medion, based in Essen, Germany, supplies home- entertainment equipment and PCs to retailers including Aldi, Europe’s biggest discount retailer, and J Sainsbury Plc in the U.K. Its profit last year increased by 33 percent to 18.9 million euros as sales climbed 16 percent. Three-quarters of its revenue came from Germany.
Brachmann, a TV engineer, ranked 40th on the Forbes list of the richest Germans in 2004 with an estimated fortune of $1.4 billion. He hasn’t appeared on the list since.
Brachmann and Lenovo have agreed on a long-term call and put option for the remaining shares, Medion’s Eigen said. Details of that agreement will be made available in the official offer document, he said. Van Duijl said he expects the deal to close in early September.
Barclays Plc advised Lenovo on the acquisition.