Lenovo makes $672M offer for German PC maker

Lenovo Group Ltd., China’s biggest maker of personal computers, offered to buy control of Germany’s Medion AG for $672 million in its biggest acquisition since the purchase of International Business Machines Corp.’s PC business more than six years ago.

Lenovo will buy a 37 percent stake from Chairman Gerd Brachmann for 231 million euros, or 13 euros a share, and plans to extend the offer to remaining shareholders, the Chinese company said in a statement today. That’s 18 percent higher than the German PC maker’s last close. Brachmann plans to keep an 18 percent stake, it said.

Chief Executive Officer Yang Yuanqing said the Chinese company is interested in making more acquisitions. The deal, which follows plans to form a venture with Japan’s NEC Corp., would help the maker of Thinkpad laptops expand its distribution network in Europe and boost its share of the global personal computer market against those of Hewlett-Packard Co., Dell Inc. and Acer Inc.

The world's No. 4 PC maker operates its global headquarters in Morrisville, N.C., but most of its operations and business takes place in China.

Lenovo, which generates about half its sales from China, fell as much as 4.4 percent to HK$4.38. The offer is 22 times Medion’s projected earnings per share, based on the average of five analyst estimates compiled by Bloomberg. By comparison, Lenovo trades at about 16 times estimated earnings.

Barclays Plc advised Lenovo on the acquisition.

Earnings Rise

Hewlett-Packard accounted for 17.6 percent of the global PC market last quarter, declining from 18 percent a year earlier, according to research company Gartner Inc. Lenovo, the fourth biggest, increased its market share to 9.7 percent from 8.2 percent, while Taipei-based Acer dropped to 12.9 percent from 14.6 percent, according to Gartner.

The purchase will help Lenovo double its market share in Germany to 14 percent, according to the statement. Medion would complement Lenovo’s west European business because of its strengths in the consumer retail market and distribution channels, Lenovo said.

Lenovo last week reported that its fourth-quarter profit tripled, beating analysts’ estimates, after increasing sales to businesses in the U.S. and Europe. Stronger orders for office computers have helped Lenovo and Dell post better-than-expected earnings as slowing demand from consumers weakened sales at HP and Acer. The Chinese company is stepping up a challenge to Apple Inc. (AAPL) by offering smartphones and tablet devices, and plans to enter the game-console market in the second half.

Medion, based in Essen, supplies home-entertainment equipment and personal computers to Aldi, Europe’s biggest discount retailer.

The company’s profit last year increased by a third to 18.9 million euros as sales climbed 16 percent. About three-quarters of its revenue comes from Germany.

Founder and Chief Executive Officer Gerd Brachmann, a TV engineer, ranked 40th on the Forbes list of the richest Germans in 2004 with an estimated fortune of $1.4 billion. He hasn’t appeared on the list since then.