Beijing: In a major breakthrough in China's ambition to become a key global player in information technology sector, its largest personal computer maker Lenovo Group Ltd today (Dec 8, 2004) acquired US-based IBM's PC-making business for $ 1.25 billion.

According to the details of the definitive agreement, Lenovo will acquire IBM's entire global desktop and laptop computer research and development and manufacturing business.

In return, Lenovo Group will pay IBM $ 650 million in cash and allot $ 600 million worth of Lenovo stocks, which will make IBM the second largest shareholder in Lenovo with 18.9 per cent shares.

Additionally, Lenovo will assume approximately $ 500 million of net balance sheet liabilities from IBM.

"There will be minimal financial impact resulting directly from the transaction to IBM's fourth-quarter 2004 results," IBM said.

"The purchase will make Lenovo Group the third largest PC make worldwide with an annual revenue exceeding $ 10 billion," Lenovo chairman Liu Chuanzhi told reporters after inking an agreement with IBM vice president John Joyce.

"As Lenovo's founder, I am excited by this breakthrough in Lenovo's journey towards becoming an international company," Liu said.

The transaction is expected to be completed in the second quarter of 2005 and requires the approval of Lenovo's shareholders and review by relevant regulatory organisations.

Lenovo Holdings, Lenovo Group's controlling shareholder, has agreed to vote its shares in favour of the transaction, the companies said in a press release.

The landmark deal ends an era for the world's largest computer company and kicks off a new age in which China's top PC maker Lenovo emerges on the world stage as a major PC brand and IBM as its strategic partner, industry analysts said.

Lenovo will have combined annual PC revenue of approximately $ 12 billion and volume of 11.9 million units, based on 2003 business results -- a four-fold increase in Lenovo's current PC business.

As part of the transaction, Lenovo and IBM will enter a broad-based, strategic alliance in which IBM will be the preferred services and customer financing provider to Lenovo. Lenovo will be the preferred supplier of PCs to IBM, enabling IBM to offer a full range of personal computing solutions to its enterprise and small and medium business clients.

Stephen M Ward, Jr, currently IBM senior vice president and general manager of IBM's Personal Systems Group, will serve as the chief executive officer of Lenovo following completion of the transaction.

Yuanqing Yang, currently vice chairman, president and chief executive officer of Lenovo, will serve as the chairman of Lenovo post-transaction.

Founded in 1984, Lenovo was the first company to introduce the home computer concept in the China, and since 1997 has been the leading PC brand in China and across Asia with annual revenues of about $ 3 billion.

IBM's PC business generated over $ 9 billion in revenues in 2003 and offers a full range of desktop and notebook PC systems.