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Lenovo Hesitates on Deals to Avoid Overpaying for Expansion

Lenovo Group Ltd. (992), seen as a suitor for everything from BlackBerry Ltd. (BBRY) to International Business Machines Corp. (IBM)’s server business, said it’s hesitant to make deals because it wants to avoid overpaying.

“We will not buy for the sake of buying,” Wong Wai Ming, chief financial officer of the world’s largest personal-computer maker, said in an interview at the company’s Beijing headquarters yesterday. “Even when an opportunity, on the face of it, makes perfect sense for us to do it, it may not happen.”

To counter falling global PC shipments, Lenovo is trying to spur sales of its mobile devices and push into the market for storage equipment and servers running corporate networks. With $3.1 billion in cash at the end of June, Chief Executive Officer Yang Yuanqing has said he’s willing to strengthen new businesses through acquisitions.

“Lenovo has very prudent matrices when looking at acquisitions,” Ken Hui, a Hong Kong-based analyst at Jefferies, said in a phone interview. “They want to make sure, if it’s a loss-making business, that there is a strong plan to turn losses into profit, soon.”

Wong said in January that Lenovo was considering a possible deal with BlackBerry, the Canadian smartphone maker. The Waterloo, Ontario-based company has struggled to reverse its fortunes following years of losing market share to Apple Inc. (AAPL)’s iPhone and devices that use Google Inc.’s Android software.

Photographer: David Paul Morris/Bloomberg

Lenovo became the No. 1 PC maker through more than $2 billion in acquisitions in the past eight years. Close

Lenovo became the No. 1 PC maker through more than $2 billion in acquisitions in the past eight years.

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Photographer: David Paul Morris/Bloomberg

Lenovo became the No. 1 PC maker through more than $2 billion in acquisitions in the past eight years.

BlackBerry Buyout

After weak sales of the new BlackBerry 10 lineup, management announced a tentative $4.7 billion buyout deal last month that would take the company private. Still, it continues to solicit offers from rival bidders during a go-shop period.

The Wall Street Journal reported today that Lenovo has signed a nondisclosure agreement with BlackBerry that would give it access to confidential financial information. Lenovo is actively considering a bid for all of the company, the Journal reported, citing people familiar with the matter.

Brion Tingler, a U.S.-based spokesman for Lenovo, declined to comment on the report, as did BlackBerry’s Adam Emery.

Shares of Lenovo fell 1.3 percent to HK$8.21 in Hong Kong today. The stock has gained 17 percent this year, compared with a 1.9 percent increase in the city’s benchmark Hang Seng Index. BlackBerry rose 0.9 percent to $8.20 today in New York.

IBM Acquisition

Lenovo became the No. 1 PC maker through more than $2 billion in acquisitions in the past eight years. After buying IBM’s personal-computer division in 2005, Lenovo expanded its market share in the past two years with purchases including Essen, Germany-based computer maker Medion AG (MDN) and NEC Corp. (6701)’s PC unit in Japan.

Photographer: Simon Dawson/Bloomberg

Wong Wai Ming, chief financial officer of Lenovo Group Ltd. Close

Wong Wai Ming, chief financial officer of Lenovo Group Ltd.

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Photographer: Simon Dawson/Bloomberg

Wong Wai Ming, chief financial officer of Lenovo Group Ltd.

Wong said a large purchase also could be financed through issuing equity.

“From a financial resources point of view, that’s not an issue,” Wong said. “There is no hindrance for us.”

The company will be more “proactive” on acquisitions, Yang said in an August interview, without naming targets. The company plans to double its share of the market for storage equipment within three years, and a good acquisition could speed that process, he said in a June interview.

Smartphones and enterprise computing remain areas Lenovo wants to expand, Wong said yesterday. He declined to identify any potential acquisition targets the company has talked with.

Investor Pressure

The company is under investor pressure to execute a deal, said Stephen Yang, a Hong Kong-based analyst at Sun Hung Kai Financial Ltd. said.

“Lenovo needs to make a deal in the next year, or growth will suffer post-2015,” Yang said. “They have raised the bar for shareholder expectations. Everybody is waiting for them to do something big.”

Lenovo was in talks to buy part of IBM’s server division until the two sides failed to agree on a price, a person familiar with the discussions said in May. In an April 19 statement through the Hong Kong stock exchange, Lenovo said it was in “preliminary” discussions about a potential acquisition with a third party it didn’t identify.

Lenovo also has approached Taiwan-based HTC Corp. (2498), which recently posted its first quarterly loss, about possible cooperation including forming a joint venture or a share swap, the Taipei-based Apple Daily reported this month.

Lenovo, which ranked No. 4 in global smartphone shipments in the second quarter, issued a statement June 4 saying it was considering a “potential joint-venture transaction” in the smartphone business.

There are “a lot of opportunities” for acquisitions, Wong said, without identifying any. The company’s cash on hand and ability to secure additional funds mean it can consider most assets, he said.

Lenovo is looking to new products for growth amid slumping PC demand. Worldwide PC shipments in the third quarter fell 8.6 percent, the sixth consecutive quarterly decline, reaching the lowest level for the period since 2008, market research firm Gartner Inc. said this month.

The company said in May it would boost smartphone shipments to 50 million units this fiscal year from 29 million last year.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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