The paper “ Pros and Cons of the Acquisition Operation for Lenovo and IBM” is a spectacular variant of case study on business. This essay refers to an acquisition deal in which Lenovo, a dominant Chinese company merged with IBM PC unit as part of its entry into the international market, paying the US $1.75 billion to acquire the world IT giant PC unit (Musil, 2004). Lenovo also acquired 10, 000 former IBM employees including the then CEO, Stephen Ward (Peng. 2008). On its part, IBM was awarded an 18.9% stake in the new company formed after the merger besides the US $ 1.75 billion (Keiser, 2007, pp.
23 – 34). Yet the merger also detailed that Lenovo would only use the IBM brand name for the ThinkPad products for the next 5 years; which will soon be ending. As such, Lenovo acquired a borrowed brand name and the infrastructure of IBM as its gain for the merger (Peng. 2008). The plan was evidently not just to use the brand name but to launch itself into the corporate market for PC’ s using the reputed brand as a launching pad (Lenovo, 2008).
This is understandable since despite being a Chinese giant, Lenovo was a non-entity in the world PC market. The US is the world-leading PC market today and the gateway to most of the rest of the world (McGregor and Guerrera, 2004, pp. 63-79). That importance may not have passed the notice of Lenovo strategists. The essay seeks to discuss the gains that both IBM and Lenovo gained through the acquisition deal and thereafter, any delimiting consequences that may have accrued from the deal for both IBM and Lenovo.
A close inspection of theories of merger and acquisition theories and the practice as detailed by relevant literature has been used to background the essay's main points. Background Information In August 2004 and four, for instance, Yuanqing Yang, the current board chairman of the Chinese computer manufacturer Lenovo, announce that Lenovo would be paying the whopping US $ 1.75 billion to acquire IBM’ s personal computing division (People Daily Online, 2005). The acquisition deal was settled in December 2004 and finalized in 2005(People Daily Online, 2005).
At the end of the deal, a total of US $ 12.5 billion had been committed to the new company (Lenovo), US $ 6.5 billion in cash and the US $ 6 billion in stock for the acquisition (Peng. 2008). This acquisition enabled the new Lenovo Company to graduate from the 9th world's largest personal computer company to the 3rd largest in market share and capital size. It was landmark acquisition from the very word go and it has helped a largely unknown brand Lenovo, in the world market to leap into an amicable leading position in the global PC market.
Since then, the company has returned the approximate US $13 billion annual revenue, with most of its products targeting both enterprises and consumers around the world (Kotler and Pfoertsch, 2006, pp. 322 – 341). Notably, before the acquisition, Lenovo had been seeking entry to the international market for some years yet months after the acquisition, the Lenovo brand name had expanded operations and initiated its recognition as an international brand (Keiser, 2007, pp. 23 – 34). Experts judge that two advantages had helped make this possible, the esteemed brand name of the American IBM and the significant centers and other investments acquired and installed in the US immediately after the acquisition (Musil, 2004).
The merger enabled the Lenovo branded products to be marketed outside China since then and for the very first time (Kotler and Pfoertsch, 2006, pp. 322 – 341).