June 1, 2011 3:04 pm

Lenovo buys Medion to bolster Europe profile

Lenovo has agreed to buy Medion, a German computer company, in an effort to strengthen its position in the European market.

The deal, which values Medion at €629.4m ($906m), is the Chinese company’s largest acquisition since its takeover of IBM’s PC unit in 2005 and gives it an established brand and a distribution network in Europe.

Lenovo has outgrown all other leading PC companies in the past two years,but it has been over-reliant on China, its home market, and its strength in the commercial PC market.

Lenovo is the world’s fourth-largest PC vendor by shipments behind Hewlett-Packard, Dell and Acer. The company’s global market share increased to 10 per cent in the first quarter from 8.4 per cent a year ago, according to IDC, the research firm.

Lenovo said the Medion acquisition would raise its market share in Germany, Europe’s biggest PC market, to 14 per cent.

Alvin Kwock, head of technology hardware at JPMorgan’s Asia Pacific equity research, said: “Lenovo had too little presence in Europe, and the eurozone is the world’s largest PC market.

“It makes sense because Lenovo’s business in Germany is so far mainly commercial, and Medion, a channel brand, is purely consumer.”

Mr Kwock said the deal was likely to lower procurement costs for the acquired company, just as has happened for NEC’s PC unit, which teamed up with Lenovo earlier this year, and for Gateway and Packard Bell, the smaller PC companies Acer acquired in 2007.

Lenovo agreed to pay Gerd Brachmann, Medion’s founder and chief executive, €231m for a 40 per cent stake in the company, 80 per cent of which is to be paid in cash and 20 per cent in Lenovo shares. The Chinese company will also open a public offer for all outstanding public shares of Medion for €13 per share.

Some analysts questioned Lenovo’s decision to buy a company in Germany,where other acquirers have struggled to make deals work. BenQ, the Taiwanese electronics firm, abandoned the handsets unit of Siemens into bankruptcy after a failed acquisition.

Yang Yuanqing, Lenovo chief executive, said such risks were not present with the Medion deal.

He said: “The previous company was not efficient enough so they had to cut the headcount. That’s not our situation”.

Lenovo’s move brings it closer to Acer, its main rival, whose main strength is in Europe. Lenovo's acquisition shows the Chinese company being “very aggressive in Europe, which has been their intention over the past few years,” said Jim Wong, the Taiwanese company’s chief executive.

But Acer said it would not embark on a battle with Lenovo to acquire smaller PC makers to boost its market share. Mr Wong said Acer was more interested in buying companies that would boosts its technology.

Acer, meanwhile, also announced on Wednesday that an internal audit of its Europe operations showed “abnormalities in . . . channel inventory stored in freight forwarders’ warehouses, and in the accounts receivable from channels in Spain”, which necessitated a $150m write-off to clear.

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