Lenovo's Motorola, IBM Server Buys Will Likely Get Strict U.S. Security Review

Any U.S. probe into the Chinese firm's plan to acquire U.S.-developed technology 'is not going to be resolved any time soon,' attorney says.

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Thu, January 30, 2014

Computerworld — Beijing-based Lenovo Group's plan to buy Google's Motorola Mobility unit and an IBM server division for a combined $5.2 billion will likely face strict and lengthy national security scrutiny by an inter-agency committee of the U.S. government, two Washington attorneys who are veterans of the review process said Thursday.

"The announced acquisition of Motorola's smartphone business by Lenovo -- which is part-owned by the Chinese government -- is a national security trifecta. This is not going to be resolved anytime soon," said Christopher Brewster, an attorney at Stroock & Stroock & Lavan in Washington. Brewster has more than 30 years experience representing companies making U.S. investments.

Lenovo is expected to face the Committee on Foreign Investment in the U.S. (CFIUS, often pronounced "sifius"), an inter-federal agency committee tasked with reviewing -- in secret -- the national security implications of foreign investments in U.S. companies and operations.

The committee is chaired by the Secretary of the Treasury and has representatives from 16 federao agencies and departments, including the Defense Dept., the State Dept., the Commerce Dept., and the Homeland Security Dept.

Created in 1975, CFIUS can recommend the U.S. president block a foreign investment, which occurred most recently in 2012 when President Barack Obama ordered the Chinese Sany Group to divest itself of four small wind farms deemed to be too close to a U.S. Navy weapons system training station in Boardman, Ore.

Both the proposed Motorola deal, valued at $2.9 billion, and the $2.3 billion agreement to buy the IBM x86 server business "would be the typical kinds of transactions for CFIUS to look at and could raise concerns," Brewster said.

Brewster said any foreign government-controlled company investing in a U.S. company is almost automatically reviewed by CFIUS. The Legend Group, backed by the Chinese Academy of Sciences, owns a 32.34% stake in Lenovo, Brewster added.

A key issue for CFIUS would be whether there will be any U.S. government users of Lenovo/Motorola smartphones and if so, are they used in sensitive jobs, said Anne Salladin, also an attorney at Stroock. Salladin handled more than 500 CFIUS cases while a senior counsel at the Treasury Department.

Even if Lenovo said they wouldn't sell smartphones or servers to U.S. government agencies, "how will anybody know? And even harder to know is what about all the government contractors?" Salladin said.

Brewster and Salladin said that Lenovo's purchase of the IBM ThinkPad division nearly a decade ago was reviewed by CFIUS and approved, but noted that the decision came long before the security lapses of the last year involving classified National Security Agency data leaks by Edward Snowden.

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