China’s Lenovo in PE pact

Texas Pacific Group, General Atlantic and Newbridge Capital are providing Chinese computer maker Lenovo with $350m for the acquisition of IBM’s personal computer business, in exchange for up to a 12.4 percent stake in Lenovo itself.

Texas Pacific Group, General Atlantic and Newbridge Capital have agreed to provide Chinese computer manufacturer Lenovo with $350 million (€271 million) for its acquisition of IBM’s personal computer business.

Under the terms of the agreement, the investment would give the three private equity partners up to a 12.4 percent stake in Lenovo business and three of the 12 board seats, if warrants received in the deal are fully converted, according to a statement.

Approximately $150 million (€116 million) will be used to finance the acquisition, while the rest will be added to Lenovo’s general working capital to provide Lenovo with an alternative funding means, the statement read.

The acquisition strengthens Lenovo’s position as one of the top PC manufacturers in the world. It commanded a 26.3 percent share of China’s PC market in 2004 and was at the top of the Asia Pacific market for the year as well, holding a 12.2 percent market share, according to the statement.

Texas Pacific is investing $200 million (€155 million), General Atlantic $100 million (€77 million), and Newbridge $50 million (€39 million). Newbridge is a subsidiary of Texas Pacific dedicated to making investments in Asia.

Lenovo will issue the private equity trio 2.73 million preferred shares and unlisted warrants with five-year maturities that give the option of subscribing for more than 237 million common shares for a total of $350 million cash consideration.

Upon full conversion of the preferred shares and assuming the issue of shares to IBM upon closing of the acquisition of IBM’s PC business, the private equity trio will own approximately 10.2 percent of Lenovo, and if they choose to exercise the warrants, approximately 12.4 percent.

After the close of the entire transaction, IBM will hold 13.4 percent of Lenovo, and will have received approximately $800 million in cash, and $450 million worth of common shares.