UPDATED 04:24 EDT / JUNE 05 2014

IBM-Lenovo x86 server deal delayed due to security fears

small__6833164041Lenovo’s acquisition of IBM’s x86 server business could be on the rocks after the two companies asked US regulators for more time to carry out a security review. The companies are said to want an extension to ensure they’ll gain the necessary approval to move forward with the deal, states a report by Bloomberg. The implication of this is that regulators are having concerns and may be unwilling to approve the deal.

The review is being carried out by the Committee on Foreign Investments in the U.S. (CFIUS), an agency that probes foreign acquisitions for national security purposes. US law states its approval is necessary before the deal is closed. In general, CFIUS reviews take around 75 days, but if the process takes longer, companies have the option to pull their paperwork and refile everything, thus gaining an extra 75 days.

Such an extension could indicate the companies are coming closer to an agreement with CFIUS to address any security concerns it has, said Timothy Keeler, a lawyer with Mayer Brown LLP in Washington, in an interview with Bloomberg.

“On big, sophisticated deals involving potentially sensitive sectors, it’s not uncommon,” he said. “Any China-related investment is going to be sensitive from a CFIUS standpoint. It doesn’t matter what the sector is.”

However, another report from the China Daily cites Lenovo’s senior vice president Chen Xudong as saying that worsening Sino-US relations in the area of cybersecurity could ultimately derail the deal. Chen added that he was still optimistic that the sale would be completed, though one would expect a senior company executive to publicly express that kind of optimism.

In any case, extra-close scrutiny of this deal was always on the cards. That’s because several US government agencies, including the FBI and the Department of Defense, use IBM’s x86 servers. Telecommunications firms like AT&T and Verizon are also big customers, reports Bloomberg.

The CFIUS’ security review comes at a time of increased tensions between the US and China over cyberspying issues. US officials have long raised concerns that Chinese companies like Huawei and ZTE could be cybersecurity risks, and have also accused China of hacking into the servers of numerous US companies and government agencies.

For its part, China has shot back and accused the US of doing the same thing, especially in light of Edward Snowden’s NSA disclosures. This has led to China upping the ante somewhat with announcements that it’s going to start vetting US technology providers, ban Microsoft’s Windows 8 from being used by some government departments, and review its banks’ use of IBM servers.

Despite these tensions, both Lenovo and IBM seem eager for the x86 deal to go ahead. As far as IBM is concerned, it’s desperate to wash its hands of a low-margin commodity business so it can focus on its Big Data, Cloud and Watson-based businesses. Lenovo’s motives are less clear, but the company clearly has ambitions to become a global leader in all computing spaces. Soon after announcing the IBM deal, Lenovo officials revealed that the company was buying Motorola Mobility from Google for $2.9 billion in an effort to grow its burgeoning smartphone business.

photo credit: ChrisGoldNY via photopin cc

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