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IBM and Lenovo Begin Closing the x86 Server Deal on October 1, 2014

Lenovo’s October 1, 2014 announcement marked the initial closing of its acquisition of IBM’s x86 server business—not a worldwide closing in every country.
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IBM and Lenovo announced that the initial closing of Lenovo’s acquisition of IBM’s x86 server business was complete on October 1, 2014. It was not a single worldwide closing: the companies said the initial phase covered most major markets, with closings elsewhere expected later in 2014 and in a few remaining countries in early 2015.

What happened on October 1, 2014?

The date marked the initial closing of the transaction, after the companies said on September 29 that its conditions had been satisfied and that closing was expected to begin effective October 1. They cited regulatory clearances from the Committee on Foreign Investment in the United States (CFIUS), the European Commission and China’s Ministry of Commerce among the conditions met. The October 1 announcement said transition had begun in the countries included in that initial closing.

At the time, IBM and Lenovo expected to close in most other countries during the rest of 2014, with a few remaining countries following in early 2015. Those were the companies’ expectations in 2014, not a claim that every country transferred on October 1. Lenovo’s October 1 announcement describes the initial closing; the September 29 announcement sets out the conditions and anticipated timing.

What Lenovo acquired—and what IBM kept

The agreement, announced January 23, 2014, transferred IBM’s x86 server business to Lenovo. The acquired portfolio included these products and operations:

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The deal did not transfer all of IBM’s server or infrastructure businesses. IBM retained System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, PureApplication and PureData appliances. The distinction is the server architecture and business scope: the transaction concerned IBM’s x86 server business, not its entire hardware portfolio.

What was the announced purchase price?

On September 29, 2014, the companies described the purchase price as approximately US$2.1 billion: about US$1.8 billion in cash after estimated adjustments and approximately US$280 million in Lenovo stock. The stock component was calculated using Lenovo’s closing share price on September 26, 2014, so these were approximate transaction figures, not a current valuation. IBM’s investor material later also described the adjusted purchase price as US$2.1 billion. IBM’s October 20, 2014 investor announcement reports the initial closing and adjusted price.

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How did the companies arrange customer support and products?

The acquisition came with a strategic alliance. Lenovo would act as an original equipment manufacturer (OEM) for IBM and resell selected products from IBM’s storage and software portfolio. The named storage products included entry- and midrange Storwize products and LTO products; the agreement also covered elements of IBM’s system software portfolio.

IBM said it would continue delivering maintenance on Lenovo’s behalf for an extended period, with the stated aim of making the customer transition seamless. The announcement did not specify a precise duration. This arrangement meant that the initial business transfer did not necessarily mean an immediate end to IBM-delivered maintenance for affected customers.

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What did Lenovo say the deal would mean?

Lenovo and IBM described the global x86 server market as worth US$42.1 billion in their September 29, 2014 announcement and said the acquisition would make Lenovo the market’s third-largest player. That figure and ranking belong to the companies’ 2014 announcement; they should not be read as a current market-size estimate or an independently assessed ranking.

“With the close of the x86 acquisition, Lenovo will add a world-class business that extends our capabilities in enterprise hardware and services, immediately making us a strong number three in the global server market.”

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Yang Yuanqing, Lenovo chairman and CEO, September 29, 2014

The statement gives Lenovo’s rationale and its own description of the expected market position, rather than an independent assessment of the deal’s later performance.

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