Feds Green-Light IBM’s Sale of Commodity x86 Server Business to Lenovo

U.S. government committee that reviews acquisitions of domestic business assets by foreign companies to prevent deals that compromise national security has approved Chinese IT vendor Lenovo’s bid to buy the commodity x86 server business from IBM, the companies announced Monday.

The companies agreed on the $2.3-billion deal in January, and the government initiated a review because of concerns that a Chinese firm was gaining access to technology used to build servers plugged into U.S. networks and particularly servers used extensively in the government’s own IT infrastructure, the Wall Street Journal (paywall) reported.

IBM and Lenovo issued statements Monday saying the deal had received a green light from the Committee on Foreign Investment in the United States – the government body that conducts such reviews.

In a statement, IBM said divesting the commodity-server business would allow it to focus more on other strategic initiatives. “The approval of the $2.3 billion sale to Lenovo enables IBM to focus on system and software innovations that bring new kinds of value to IBM clients in areas such as cognitive computing, Big Data and cloud, and provides clarity and confidence to current x86 customers that they will have a strong partner going forward,” the statement read.

Lenovo issued a statement confirming the CFIUS approval and saying it was confident this and its other big acquisition currently in the works – the acquisition of Motorola Mobility from Google – would close.

“As we have stated consistently for both the x86 and Motorola Mobility acquisitions, we continue to work through a number of regulatory and business processes to ensure an effective and timely closure on both deals,” the Chinese company’s statement read. “We remain on track to close both deals by the end of the year.”

While the two vendors have argued that most of IBM’s x86 servers are manufactured by Chinese companies in China using many Chinese components anyway, the government was also concerned with service contracts tied to the hardware used in government data centers, Richard Gephard, member of a government agency overseeing U.S.-China trade and economic relationship, told the Journal.

There was a similar concern when Lenovo bought IBM’s PC business in 2005, and the solution was to keep the service contracts with IBM and to renew them when they expired. That deal was also reviewed by CFIUS and approved.

The Journal reported that the national-security review of the server-business acquisition was likely in January, following announcement that the two companies had reached a deal. The newspaper interviewed a series of expert lawyers who agreed that given the deep entrenchment of IBM hardware in government IT infrastructure, the review was a must.

CFIUS has blocked big cross-border deals in the past. The committee’s 2011 investigation into Huawei’s bid to acquire Silicon Valley startup 3Leaf Systems resulted in withdrawal of the offer by the Chinese hardware vendor.

In another example, President Barack Obama blocked the acquisition of four wind-farm projects in the U.S. by Chinese company Ralls Corp. Ralls appealed, however, and the appeals court ruled against the president’s administration in July.