United States National Security regulators have given the go ahead for Lenovo to purchase the not so profitable IBM x86-server business.
The decision was a major win for Lenovo, the PC maker based in China, as the investigation of 150 days conducted by the Committee on Foreign Investment in the U.S. from the Department of the Treasury, is one of the last big hurdles for a foreign company wanting to invest in a business based in the U.S.
The deal worth $2.3 billion will be the biggest acquisition for Lenovo if approved. However, it faces great scrutiny from regulators in the U.S. due to national security.
The deal could be struck down by U.S. regulators because the low technology servers of x86 of IBM are used to maintain the networks at the Pentagon.
As per the deal’s terms, Lenovo will maintain those servers and security officials in the U.S. have raised their concern that with Lenovo running the show, the servers could be penetrated by spies and hackers from China.
However, Lenovo is using a campaign of public relations to convince U.S. regulators that its sole intent is commercial to acquire the server business of IBM. The business Lenovo is buying is very profitable in China as more and more companies in China look to national manufacturers for purchasing IT equipment because of more concern over surveillance by the U.S.
Regulators in the U.S. have become more wary of technology firms from China. In October of 2012, Congress released a warning that advised the public from doing networking with equipment from ZTE and Huawei, as these products the regulators said could pose a threat to the U.S. national security.
Lenovo was dealt a wildcard however, as it has been through the CFIUS process on three occasions and successfully been approved.
In 2005, Lenovo went through a rigorous investigation when it attempted to acquire the PC business of IBM for $1.25 billion.
However, some sensitive government arms in the U.S. continue to refuse to use products from Lenovo.
IBM has agreed to maintain the servers at the Pentagon for five year, which has helped.
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