Suppose IBM-Lenovo Deal Doesn’t Happen

The word on the street, and among a few scattered news sources, is that the proposed sale of IBM’s personal computer division is in trouble with the feds.

Specifically, the trouble is said to come from the Committee on Foreign Investment in the United States (CFIUS), which is sponsored by the Treasury Department and consists of representatives from a number of federal departments, including the Department of Homeland Security and the Department of Justice.

The job of this committee is to determine whether the involvement by foreign companies in U.S. companies is contrary to the best interests of the nation.

This committee, along with other government entities, has had veto power over corporate transactions and other activities for years, especially when they involved technology transfers (real or imagined) or intellectual property that could conceivably be used to harm the United States.

One good example has been the restrictions on sale of advanced computers to any of a long list of foreign recipients, ranging from China to Iran. Likewise, the feds have stopped other types of activities. For example, some companies have been refused permission to launch satellites using rockets launched from China or Russia.

The concern in this case is twofold. The first is that Lenovo, which is very close to the Chinese government (as are most other large industrial companies there), would pass the technology it gains from IBM to China, and ultimately, to the Chinese military and the rest of the government.

The second concern is that China, using its position with Lenovo, would use the IBM facility in North Carolina’s Research Triangle as a base for industrial espionage. No doubt a concern that hasn’t been articulated by those passing along the rumors is that the espionage wouldn’t stop at the industrial kind.

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Again, this is not new. The Chinese government has a long history of using business and cultural activities as fronts for espionage of all types.

In fact, about 15 years ago, The Washington Post revealed that the Chinese government was secretly the owner of a number of retail outlets and restaurants frequented by government officials. These businesses existed as a means of funneling Chinese spies into the United States, and as a way to keep tabs on unsuspecting government officials.

Of course, it’s a long way from Chinese restaurants to a major technology manufacturing company, but it’s easy to see why the feds are worried. More to the point, technology transfers are one of the prime targets for government-sponsored industrial espionage, and that’s not just the Chinese. Nations ranging from Israel and France to Russia and China all have tried to get such information, with varying degrees of success. Yes, our allies are spying on the United States in addition to the countries that you’d expect to be sending spies.

So, assuming that CFIUS is examining the IBM-Lenovo deal, what’s likely to happen? There’s a good chance that the feds will simply recommend that the deal not be approved. Or the committee could ask that the deal be restructured in some way that it feels would reduce the potential for abuse. Or it could approve it.

It’s not clear which way the committee is leaning, if indeed the whole issue is being considered at all. And despite the rumors, we don’t know for sure whether that’s happening.

In fact, all we know now is that the companies have filed their required forms, and that they’ve been submitted to the committee. That’s something that has to be done, so there’s no surprise here. But we don’t know anything else, and the government’s not talking. In fact, each of the government spokespeople I talked to Monday refused to comment in any way.

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But what will happen if ultimately the deal is turned down, or if the changes make it unpalatable? Probably nothing, at least immediately. IBM’s a big company, and this would be a minor setback.

The next step would be for IBM to investigate whether it could restructure the division enough to keep it, or whether the company could find a partner that’s not from China. Either of these could happen. Assuming that the rumors are right and that the deal might be in trouble. But right now, we don’t know that.

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