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Lenovo chases Packard Bell

By Judy Hua and Edwin Chan
Reuters
Wednesday, August 8, 2007; 8:25 AM

HONG KONG (Reuters) - Lenovo
Group<http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=LNVGY&nav=el>Ltd.
(
0992.HK), the world's No. 3 maker of personal computers, wants to take over
a mid-tier PC manufacturer valued at about $800 million to bolster a barely
profitable European arm.

Its shares, which have seesawed since the firm released a strong set of
quarterly earnings, stood 2 percent higher on Wednesday in a stronger market
after the firm revealed it hoped to buy rival Packard Bell to strengthen its
European operation.


If successful, the deal would allow the Chinese giant to quickly grab market
share in a region where it is ranked sixth and barely profitable, while it
continues to digest and revive a global PC business bought from
IBM<http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=IBM&nav=el>(
IBM.N) in 2005.

But it could expose the firm to an intense battle for consumers with the
likes of Dell Inc. (DELL.O), Hewlett Packard (HPQ.N) and aggressive Acer
Inc. (2353.TW).

"It's like a cardiac stimulant. It will help Lenovo to guarantee growth,
especially in Europe," said JP Morgan analyst Charles Guo. "And it should
help them maintain their global No. 3 PC vendor position."

Lenovo, just starting to turn around its U.S. operations, said on Tuesday it
was in exclusive talks to buy PC maker Packard Bell BV -- which IDC
estimates ranks ninth in global PC sales with 2 percent market share -- from
owner John Hui.

One of a handful of Chinese companies trying to forge a global brand by
investing abroad, it dropped to fourth globally in the first three months of
2007 but reclaimed the No. 3 spot from Acer a quarter later, riding an
upswell of corporate demand.

To drive sales to consumers, the company now plans to launch a range of
notebooks in January and desktops in March or April.

Most analysts would not be drawn so soon on Packard Bell's price tag or on
the bottom-line impact if a deal goes through.

"Based on an assumption that Packard Bell's topline is 1.5 billion euros
($2.06 billion), net margin is 2.5 percent and 15 times PE, the deal is
estimated at $700 million to $800 million," said Cazenove's Zhao Xin.

But the price tag could change dramatically depending on its undisclosed
bottom line.


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