IBM

IBM
Lenovo Group Limited

May 01, 2005 02:00 ET

Lenovo Completes Acquisition of IBM's Personal Computing Division


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: IBM

NYSE SYMBOL: IBM

AND LENOVO GROUP LIMITED

SEHK SYMBOL: 992
Pink Sheets SYMBOL: LNVGY

MAY 1, 2005 - 02:00 ET

Lenovo Completes Acquisition of IBM's Personal
Computing Division

BEIJING and ARMONK, N.Y.--(CCNMatthews - May 1, 2005) -

IBM (NYSE:IBM)

-- New global PC leader emerges

-- New Lenovo board members named

-- Transaction completed successfully, ahead of schedule

-- New innovative products to be shipped within weeks

Lenovo Group Limited (SEHK:992)(ADR:LNVGY) and IBM (NYSE:IBM) today
announced the closing of the acquisition of IBM's Personal Computing
Division by Lenovo, creating a new international IT competitor and the
third-largest personal computing company in the world.

"The closing of this transaction is an historic event for Lenovo and
marks a new era for the global PC industry," said Yuanqing Yang,
chairman of Lenovo. "The new Lenovo's strategy is based on what our
customers want: high-quality products and world-class service. We are
committed to delivering the highest quality, most innovative PC products
and services to our customers, to providing the best working environment
for our employees, and to creating value for our shareholders."

"Lenovo is well-positioned, with competitive strengths in branding,
world-class scale and industry-leading efficiency," said Stephen M.
Ward, Jr., chief executive officer of Lenovo. "Lenovo's leading R&D and
product differentiation capabilities, experienced management team and
global distribution network -- through our unique alliance with IBM --
give us a powerful competitive position in global markets. Within weeks,
we will be introducing new products as the new Lenovo."

The company's strengths include global brand recognition, through the
combination of the highly regarded "Think" brand notebook franchise and
Lenovo's leading brand recognition in China, enhanced service and
support for consumers and enterprise clients, and consumer strength and
market leadership in China, the world's fastest growing IT market.
Lenovo has one-third of the emerging China PC market and leading shares
in enterprise PC markets around the world.

Summary of the Transaction

Under the terms of the transaction, Lenovo has paid IBM US$1.25 billion,
comprised of approximately US$650 million in cash and US$600 million in
Lenovo Group shares, based on the closing price on the last day of
trading prior to the December 2004 announcement. IBM's ownership in
Lenovo upon closing is 18.9 percent. Additionally, Lenovo will assume
approximately US$500 million of net balance sheet liabilities from IBM.

IBM will record a pre-tax gain on the sale of approximately US$1
billion. The gain will be reported when IBM releases its second-quarter
2005 financial results.

The definitive agreement for the acquisition was announced December 8,
2004. Lenovo's shareholders approved the transaction January 27, 2005.
The closing of the transaction represents the completion of all the key
terms of the definitive agreement.

In a transaction announced on March 31, 2005, Lenovo has agreed to the
terms for a strategic investment of US$350 million from leading private
equity investment firms Texas Pacific Group, General Atlantic Group and
Newbridge Capital Group. Per the agreement, Lenovo will issue US$350
million worth of convertible preferred shares and unlisted warrants that
can be converted into common shares of Lenovo. A meeting of Lenovo
shareholders in relation to this strategic investment is scheduled on
May 13, 2005.

Subject to approvals by the Hong Kong Stock Exchange, regulatory
authorities and a Lenovo shareholder vote, IBM's ultimate consideration
for the transaction is expected to be approximately US$800 million in
cash and US$450 million in Lenovo Group stock, which, as currently
proposed, would be accomplished by a repurchase of shares of Lenovo from
IBM.

Lenovo Management and Board of Directors

The new Lenovo management team will draw on the strengths of both
companies. With the completion of the transaction, Mr. Yang has been
named chairman of Lenovo, effective immediately, succeeding Liu
Chuanzhi, Lenovo's founder, who has been named a non-executive director
of the board. Mr. Ward, previously IBM senior vice president and general
manager of IBM's Personal Systems Group, has been named chief executive
officer of Lenovo and also appointed to its board of directors,
effective immediately.

IBM has nominated Robert W. Moffat, Jr. and Henry Chow to sit on the
Lenovo board as non-voting observers.

After the private equity transaction closes, three additional, new board
members from the strategic investor group will join the board.

Lenovo also announced that Linan Zhu has been appointed as a
non-executive director, replacing Maochao Zeng who has resigned from the
board.

Synergies and Cost Savings

Lenovo said the closing occurred ahead of schedule, noting that its
pre-closing transition and integration activities have gone smoothly.
Lenovo expects that its customer service and product availability will
continue as usual without interruption.

Lenovo will have combined annual PC revenue of approximately US$13
billion and volume of approximately 14 million units. "We expect to
capture synergies starting today through leveraging the complementary
nature of Lenovo and PCD's customer bases, product offerings and
geographic coverage while utilizing Lenovo's highly sophisticated
operating platforms," said Mr. Ward.

Lenovo expects to generate synergies in procurement and marketing
expenses, as well as significant medium-term synergies resulting from
new market expansion and product launches, manufacturing optimization
and supply-chain integration.

IBM and Lenovo will work together in a unique marketing and services
alliance, through which Lenovo's PCs are marketed through IBM's powerful
worldwide distribution and sales network. The new Lenovo will be the
preferred supplier of PCs to IBM, which will continue to offer a full
range of end-to-end integrated IT solutions to its enterprise and small-
and medium-sized business clients. IBM will be the new Lenovo's
preferred supplier of services and financing.

Global Operations

Lenovo's executive headquarters are in Purchase, New York, with
principal operations in Beijing, China and Raleigh, North Carolina, and
sales representation worldwide through its own locations, Lenovo
Business Partners, and the alliance with IBM. The company employs more
than 19,000 people worldwide. Research and development centers are in
Beijing, Shenzhen, Xiamen, Chengdu, and Shanghai, China; Tokyo, Japan;
and Raleigh, North Carolina.

Lenovo's primary PC manufacturing and assembly facilities are located in
Shenzhen, Huiyang, Beijing, and Shanghai, China. Lenovo's mobile handset
assembly facilities are in Xiamen, China. Additional manufacturing and
distribution facilities are located in the United States, Mexico,
Brazil, Scotland, Hungary, India, Malaysia, Japan, and Australia.
Lenovo's extensive PC distribution network includes approximately 4,400
retail outlets in China for the consumer business.

About Lenovo

Lenovo Group Limited (SEHK:992)(ADR:LNVGY) is an innovative,
international technology company formed by Lenovo Group's acquisition of
IBM's Personal Computing Division. Lenovo develops, manufactures, and
markets the most reliable, secure, and easy-to-use technology products.

Globally, the company offers customers the award-winning ThinkPad
notebooks and ThinkCentre desktops, featuring the ThinkVantage
Technologies software tools as well as ThinkVision monitors and a full
line of PC accessories and options.

In China, Lenovo commands about one-third of the PC market covering all
segments. Its leading-edge PCs are highly acclaimed for ease-of-use,
tailor-made designs and customized solutions for various customer needs.
Lenovo has been the number-one PC vendor in China for eight consecutive
years and the best-selling PC vendor in Asia-Pacific (excluding Japan).
Lenovo also has a broad and expanding product line encompassing mobile
handsets, servers, peripherals and digital entertainment products for
the China market.

Lenovo was listed on The Stock Exchange of Hong Kong in 1994 and is
currently a constituent stock of the Hang Seng Index and the MSCI China
Free Index. Its American Depositary Receipts are traded over-the-counter
in the United States. In March 2004, Lenovo joined The Olympic Partner
Program of the International Olympic Committee as the first Chinese
company to become the computer technology equipment partner of the IOC
for the period from 2005 to 2008.

For more information, please visit http://www.lenovo.com.

Forward-Looking and Cautionary Statements

Except for the historical information and discussions contained herein,
statements contained in this release may constitute forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to
differ materially, as discussed in the company's filings with the U.S.
Securities and Exchange Commission (SEC).

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