NEW YORK and HONG KONG -- China's Lenovo Group has resumed talks to buy IBM's low-end server unit, a source familiar with the matter said, a purchase that would bolster its efforts to diversify beyond a shrinking PC market.
A deal for IBM's x86 servers, which power corporate data centers, fits in with Lenovo's attempts to remold itself as a growing force in mobile devices and data storage servers. It also helps IBM's shift away from hardware towards software and services.
The two companies failed to reach an agreement last year after differing on pricing. Media reports then put IBM's hopes at between $4 billion to $6 billion for the unit, while Lenovo was said to be only willing to offer $2.5 billion.
Analysts now estimate the sale of the IBM (IBM) unit to Lenovo could be worth between $2.5 billion and $3 billion. That would make it the biggest ever deal in China's IT sector, %VIRTUAL-article-sponsoredlinks%outpacing Badu's acquisition of 91 Wireless from NetDragon Websoft for $1.85 billion last year.
"Everybody wins because even if IBM could double the profitability it's still not good enough for IBM. On the other hand, Lenovo doubling the server business margins is a good deal for Lenovo," said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein.
Lenovo, the world's biggest PC maker, said Tuesday it was in preliminary talks about an acquisition. It declined to name the seller but said it was making the statement in response to reports about its potential acquisition of a server business.
It added that it hadn't entered into any definitive agreement and that no material terms had been agreed to.
An IBM spokesman said Monday the company wouldn't comment on the matter.
Dell (DELL), which went private in a $25 billion deal last year, has also been cited in media reports as a potential suitor for the business. A Beijing-based spokesman for Dell declined to comment.
Eager Seller, Flush Buyer
Lenovo's purchase of IBM's Thinkpad PC business in 2005 for $1.75 billion became the springboard for its leap to the top of global PC maker rankings.
Moel, who estimates IBM's low-end server business could be worth between $2.5 billion to $2.9 billion, said IBM was likely more eager now to do a deal than last year after several quarters of weak earnings.
But any deal would also likely invite scrutiny from the Committee on Foreign Investment in the United States as servers were more directly related to data security than PCs and phones, he added.
Lenovo could finance the deal through a combination of cash, debt and converts, said Nicolas Baratte, a Hong Kong-based analyst with brokerage CLSA. The company has $3 billion in cash, and very little debt, and IBM is a very willing seller, he added.
"If IBM sells all its server business, except the top-end servers, the deal is worth $2.5 to $3 billion," Baratte said.
"There is no financing problem for $3 billion, but I don't think it will be one hundred percent cash."
Shares in Lenovo, which has a market value of $13.7 billion, closed up 2.75 percent at HK$10.46 Tuesday, while the benchmark Hong Kong share index was up 0.5 percent.
Its shares have surged 12 percent this year, and earlier this month marked their highest level in more than 13 years after an IDC report showed it managed to boost PC shipments 9 percent in the fourth quarter while industry shipments slid 5.6 percent.
IBM is due to report fourth-quarter earnings later Tuesday. In the previous quarter, revenue missed expectations, hit by a 40 percent drop in China hardware sales.
-Reporting by Ryan Vlastelica, Devika Krishna Kumar, Paul Carsten, Donny Kwok and Denny Thomas.
14 Money Mistakes to Avoid in 2014
Lenovo Reboots Talks to Buy IBM Server Unit
Interest rates are low, but that's no excuse to accept 0.01 percent interest rates on your savings. Just a little shopping can find you many FDIC-insured savings accounts paying as much as 1 percent in interest, usually with no fees and easy availability to your money through electronic funds transfers. Compared to the near-zero rates that uninsured money-market mutual funds and other alternatives pay, high-interest savings accounts are a much safer way to save.
Banks still try to get customers to pay more for less, with one recent threat to charge fees for basic deposit accounts if the Federal Reserve cuts interest rates further. But many online banks not only offer fee-free options on their checking and savings accounts but also pay interest, and many have extensive fee-free ATM networks or reimbursement arrangements. If your bank follows through on threats to raise fees, taking your business elsewhere is your best move.
Bankrate reports that the average credit card charges around 16 percent in interest. That's a guaranteed money-maker for the banks that issue cards, but a big loser for those who carry balances on their cards. With many cards offering promotional interest rates as low as 0 percent, using them to get rid of high-interest cards is a no-brainer move and can help you pay your debt down faster.
Mistakes on your credit history can keep you from getting a loan that you want to buy your next home or car, but they can also have consequences you'd never imagine. Increasingly, insurance companies, apartment rental agents, and even prospective employers order copies of your credit report to see if you're financially responsible. Be sure to take advantage of your free credit check at the government's annualcreditreport.com website to make sure the three big credit-rating agencies have everything right before mistakes come back to bite you.
Payday loans have gotten more tightly regulated recently, but banks and other financial institutions still offer ways to let you get quicker access at your cash -- for a hefty fee. Resorting to short-term money fixes can land you in even more problematic situations down the road, because those solutions often create debt spirals from which it's hard to emerge unscathed. Set up an emergency fund instead and be prepared in advance for the money woes that life throws your way.
Interest rates have risen during the last half of 2013, with a typical 30-year mortgage carrying a 4.5 percent interest rate. But many homeowners still carry higher-interest mortgages from before the financial crisis. Now that home prices have risen, you might be able to refinance for the first time, and many homeowners have used lower rates to cut hundreds from their mortgage payment or shift to a shorter-term 15-year mortgage to pay off their debt faster.
Too many people never update their insurance coverage to deal with changes in their coverage needs, whether it comes from changes in family status for life insurance, health conditions for health-care or long-term care insurance, or even what types of property you own for homeowners' insurance. Don't wait for disaster to strike; check with your insurer or agent to see if your current coverage meets your needs.
In the past, investors had to pay hundreds or even thousands of dollars just to make a simple stock purchase. Now, though, the rise of discount brokers, low-fee index funds and exchange-traded funds, and freely available investment news and advice have made it silly to spend large amounts to get access to the financial markets. If you're still paying your broker too much to invest, look into alternatives that can help you avoid cutting serious money out of your retirement nest egg.
Everyone likes a tax break, and one of the best ones for you to use involves making contributions to a tax-favored retirement account. By putting money in an IRA or 401(k), you can reduce your current taxable income and save on your taxes while also preparing for the future. With 401(k)s, your employer might even chip in a bit on your behalf. Even when times are tough, finding even small amounts to save can put time on your side and make a big difference down the road.
Many investors found out the hard way this year that bonds aren't as safe as they thought, with some major bond funds posting double-digit percentage losses in 2013. Despite those losses, bonds still carry substantial risk in 2014, with many calling for imminent interest-rate hikes that would erode their value further. Even now, bond rates are so low that they don't compensate you much for their risk.
In contrast to bonds, stocks have soared in 2013. That has some investors finally piling into the market for the first time since 2008 and 2009, while others remain shell-shocked from the massive losses they incurred back then during the financial crisis. Even with the Dow Jones Industrials (^DJI) and other major market benchmarks near all-time record highs, it makes sense to have some stock exposure in your portfolio. Just don't go overboard in the false belief that gains of 20 percent and 30 percent will happen every year.
If you pay full price for just about anything these days, you're paying too much. The rise of deep-discount stores has led to falling prices at stores and shopping malls. Moreover, online tools like coupon sites, daily-deal offers, discounted gift cards, and cash-back credit-card deals can cut your costs as well. With all these tools, you won't find many situations in which you have no chance of getting a bargain on the items you want.
In the past, many young adults focused on getting into as strong a college as they could, figuring that their degree would pay them enough to make up for the costs they incurred. With college graduates facing a more challenging job environment than ever, smart students are thinking about college costs before they make a decision on a school. By maximizing financial aid and looking at lower-tuition schools with nearly as strong educational quality, you can avoid creating a big debt hole that you'll struggle with for years into the future.
If you don't have a will, a power of attorney for financial and health-care matters, and an advance directive to tell medical professionals whether you want certain life-preserving measures taken if something happens to you, then you're putting your family at risk. Many people don't have even these basic estate-planning documents, but getting them in place is easier and less expensive than most believe. Get your affairs taken care of in 2014 and save your loved ones some big future hassles.
Resolving to be more financially astute and to avoid common mistakes will help you get your finances in order more quickly. These tips should give you more money to help you meet all your financial goals.