Last updated: January 26, 2005 11:35 pm

Congress threatens IBM unit sale to Lenovo

The acquisition of IBM's personal computer business by Lenovo, China's biggest computer supplier, was thrown into doubt on Wednesday after Republicans in Congress said it could threaten US security interests.

A trio of Republican committee chairmen led by Duncan Hunter, chairman of the House armed services committee, called for a full security review of the sale, warning that it could result in the transfer of US military-related technologies to Beijing.

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Lenovo's agreement last month to buy IBM's US-based PC division for $1.75bn (£940m) would be the biggest overseas acquisition by a Chinese company.

But the Republicans want a full 45-day review by the committee on foreign investment in the US, an inter-agency group that assesses the security and economic risks of takeovers by foreign groups of US companies.

In a letter to John Snow, treasury secretary and CFIUS chairman, they said the deal could also result in advanced US technology and corporate assets falling into Chinese government hands. An extended review could force IBM and Lenovo to begin negotiating changes to the deal to alleviate concerns.

“What needs to be done is proper checks by our government and the proper regulatory authorities. The door is probably open if they satisfy everyone's concerns,” said a spokesperson for Mr Hunter.

If the US government were to block the transaction, it would be a heavy blow to Lenovo's ambitions. It sees the deal as a way to establish itself as a global brand, bringing the financial resources needed to match its rivals. A US move to block the acquisition would also have implications far beyond Lenovo. Both Beijing and other Chinese groups could see it as a signal that the US could try to stop them moving into strategic businesses.

The opposition from Mr Hunter and Henry Hyde, chairman of the House international relations committee, could pose a serious threat to the deal. Mr Hunter who has influential allies within the Pentagon has long wanted to strengthen national security reviews of foreign takeovers.

IBM appears to have been caught off-guard, and it is unclear why the sale of relatively low-level technology should cause such a stir.

Bill Reinsch, president of the National Foreign Trade Council, which represents US multinationals, said such questions were largely settled during the final years of the Clinton administration, which determined that national security concerns could only legitimately be raised by the sale of high-level technology.

But Mike Wessel, a member of Congress's US-China Economic & Security Review Commission, said: “You need to have a certain level of security, particularly when there is a potential of helping the Chinese leapfrog our technological prowess.”

IBM said it was following “all the normal and routine procedures” in the government's review. Lenovo was not immediately available for comment.

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