UPDATED 13:38 EDT / SEPTEMBER 30 2014

Three months late and $200M short, IBM-Lenovo server deal finally looks to be closing

international deal handshakeLenovo Group Ltd. is on course to becoming the world’s third largest supplier of commodity servers after regulators signed off on a multi-billion dollar deal that will see it take over IBM’s x86 business. The acquisition is expected to complete on Wednesday, three months behind the expected schedule outlined when the companies first revealed plans for the sale in January.

The transaction hit a snag just over halfway into the handover process when CFIUS, the federal body responsible for assessing the national security implications of major international transactions involving American firms, failed to approve the acquisition within the initial 75-day review period. Analysts pinned the holdup on the sensitive nature of Washington’s relationship with China, which forced IBM and Lenovo to refile their papers in hopes of receiving an extension. The hassle would prove worthwhile.

A few weeks short of the second deadline, CFIUS was finally swayed. The anti-monopoly bureau of China’s Ministry of Commerce followed suit in giving the green light a month later, paving the way for the transaction to proceed. The last leg of the journey mostly went smoothly from there, with the relatively minor exception of $200 million that had to be shaved off the original $2.3 billion price tag due to a change in the valuation of inventory and deferred revenue liability, according to Lenovo.

A few hundred million dollars here or there don’t diminish from the strategic importance of the deal to either firm. Leaving the cutthroat x86 server segment will free up IBM to focus on more profitable areas such as cloud computing and analytics, while Lenovo is gaining a ticket into a $42 billion market that, although fiercely competitive, is nonetheless growing steadily. The same can’t be said for the PC industry, where the Chinese manufacturer maintains a leadership position (thanks in no small part to its acquisition of Big Blue’s personal computing business in 2004) and which has been declining at an accelerating rate over the last few years.

Under the terms of the soon-to-be-closed deal, Lenovo will absorb IBM’s freshly expanded System x family along with the BladeCenter and Flex System blade servers and switches, Flex pre-configured appliances and NeXtScale and iDataPlex machines, plus all the associated software and operations. Big Blue, for its part, will hold onto its System z mainframes, Power Systems, Storage Systems and Power-based Flex servers as well as the PureApplication and PureData appliances.

photo credit: Victor1558 via photopin cc

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