Sunday, August 12, 2007

The Transition Begins: China to dump shrivelling dollars by purchasing companies

China's Lenovo in talks to buy Netherlands-based PC maker Packard Bell

SHANGHAI (AFP) -- China's Lenovo Group, the world's third-largest personal computer maker, said Wednesday it was in discussions to buy Packard Bell, one of the biggest players in the European computer industry.

In what could become another bold Chinese foray overseas, Lenovo said it had signed a memorandum of understanding ""with an independent third party in relation to a proposed acquisition"" of the Netherlands-based company.

""The proposed combination of Lenovo and Packard Bell fits squarely within Lenovo's strategic growth priorities,"" said Angela Lee, a Lenovo spokeswoman based in Hong Kong.

""We believe the proposed acquisition would create a winning combination that could deliver strong marketplace presence and competitive advantages, particularly in the Western Europe consumer market.""

Lenono identified the third party only as the ""owner and seller"" of the company. A Chinese-American businessman, John Hui, bought Packard Bell from Japan's NEC last year.

The deal would come as the latest in a series of high-profile Chinese acquisitions abroad, highlighting the Asian giant's growing economic muscle.

Most recently, a new investment agency charged with managing part of China's 1.3-trillion-dollar forex reserve spent three billion dollars in June on a share in U.S.-based private equity firm Blackstone.

""Lenovo will need to do a lot of PR work with EU government officials,"" said Zhang Tao, a research director with CCID Consulting, a firm that specializes in the computer industry.

But the economic rationality of the deal was not in doubt, he added, pointing out that Lenovo is under pressure in American and European markets, where Packard Bell has a good presence.

""It would also give Lenovo a stronger foothold in Europe, which is its rival Acer's largest market,"" he said.

Lenovo and Acer, the giant Taiwan computer maker, are currently competing for the third spot in the global computer industry, although both are well behind the industry's top duo, Dell and Hewlett-Packard.

Lenovo bought IBM's personal computer unit in 2005 and it is still working towards unifying the acquisition with its established operations.

It announced in April plans to cut 1,400 jobs, or five percent of its global workforce. This is expected to result in about 100 million dollars cost savings in the year to March 2008.

Recent financial results suggested that Lenovo's struggle to integrate the IBM unit might have turned a corner.

The Chinese company reported a net profit of US$66.84 million for the first quarter to June, a near 13-fold increase from a year earlier amid strong growth in PC shipments with a 30 percent increase in China.

Lenovo will likely value the lessons it learned taking over IBM's PC unit, said Simon Ye, a Beijing-based analyst with Gartner Research, which focuses on the computer industry.

""With its experience in acquiring IBM's PC unit, integrating Packard would not be a big problem...Lenovo did a good job by promising to stick to the quality standards and retain the teams,"" he said.

""Job cutting will certainly happen as it has to unify Peck Bell with its current EU operations, which partially overlap. It could be a challenge to pass the transitional period smoothly with job cutting and prevent customer drain.

Original article posted here.

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