Global Economics

IBM Offloads More Lenovo Shares


The global IT company chucks $77 million of its holdings in the Chinese computer group—the third sell-down this year

For the fifth time in 18 months, International Business Machines (IBM) last night reduced its stake in Chinese computer manufacturer Lenovo Group. IBM sold 116.19 million shares, raising a total of HK$603.03 million ($77 million).

The deal represents 1.3% of the company and reduces IBM's share in Lenovo to 4.7% from 5.96%. This is significant because IBM is now under the 5% ownership threshold, which means it no longer needs to disclose its future sales of stock in the company.

Also, IBM no longer faces a lock-up, leaving the company free to sell its Lenovo shares as it pleases, though a source said that it had no near-term plans to sell more of its stake.

The book was open for approximately 90 minutes after the close of trading in Hong Kong yesterday. The price range was indicated between HK$5.19 and HK$5.36, representing a discount of between 4% and 7% versus the closing price. The shares were priced at HK$5.19, resulting in the widest discount.

A total of 40 investors came into the deal, leaving it multiple times covered. The demand was predominantly from Asia, with a small amount of interest from European investors. The deal was not left open long enough for US investors to participate. Many of the investors were said to have taken part in IBM's earlier sell-downs as well, although there were also a couple of newcomers who put in large orders.

In terms of timing, yesterday was described as "a good window of opportunity". Lenovo's shares were up 2.4% before closing at HK$5.58, which is below the levels reached in May when the share price was hovering around HK$6.50, but well above the March low of HK$4.34.

Lower prices and bigger discounts are signs of the times. Of the three IBM sell-downs that have taken place this year, yesterday's 7% discount was the widest of them all. In February the shares were sold at a 3% discount and a price of HK$5.41, and in April they went at a 6% discount and a price of HK$5.61.

In May, Lenovo released its annual earnings report, which showed: a 17% increase in sales to $16.4 billion; a pretax income gain of 237% to $560 million; and a 113% improvement in earnings before interest, tax, depreciation and amortisation to $798 million. In the final quarter of the financial year ending in March, the company reported growth in sales in all geographical regions.

When Lenovo purchased the personal computing arm of IBM in 2005, payment was partially made in shares, leaving IBM with a 15% stake in the purchaser. IBM will not be concerned that yesterday's selling price is lower than this year's other two placements because it is still much higher than the HK$2.67 price at which it received the shares.

All five IBM sell-downs of Lenovo stock, including yesterday's, have been arranged by Citi.


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