PC Maker Lenovo in Talks on Possible Deal

Lenovo Group, the world's No. 4 personal computer maker, confirmed on Thursday it is in preliminary talks on a possible investment or acquisition, a day after its stock soared on speculation of a deal.

But Lenovo did not name the third parties in the talks, and said no formal negotiations were under way at this stage.

Like its global rivals, Lenovo is facing sputtering demand for its computers as the world economy slows and consumers and companies cut back on tech spending. But the company is sitting on a big cash pile, and has said it is open to acquisitions amid an expected consolidation in the PC industry.

Brazilian media have reported that both Lenovo and possibly larger rival Dell [DELL 12.08 0.06 (+0.5%) ] were interested in Positivo Informatica (PI), the country's biggest computer maker. Fujitsu's Fujitsu-Siemens PC business is another suspected target.

"The directors confirm that the company has certain preliminary discussions with independent third parties regarding potential investments opportunities and acquisitions," the company said in a statement, signed by Chairman Yang Yuanqing.

The statement added the company had not entered into any agreement relating to an acquisition.

Lenovo's shares jumped 26.6 percent on Wednesday on speculation of a deal. But the stock retreated in early Thursday trade, standing about 5 percent lower in the afternoon session, as investors grew unsure if an acquisition at this point was a timely move.

"It's an opportunity for Lenovo to acquire assets overseas. It has a very high level of cash in hand. But the timing itself is a concern because the market is very cautious," said Ben Kwong, chief operating officer at KGI Asia Ltd. "The company's fundamentals are also a bit of a concern because of slowing demand worldwide."

Prior to talk of a possible deal, PI's share price had fallen about 87 percent so far this year and Lenovo's about 75 percent.

Near-Term Deal Unlikely

An analyst with JP Morgan said any potential acquisition by Lenovo was still at an early stage and was not likely to materialize in the next three months.

"The merger talk has helped the positive sentiment we have seen in the past few days, which pushed the stock up further," said JP Morgan equity analyst Charles Guo.

According to JP Morgan's equity research, Lenovo has been looking into an acquisition for some time to achieve its targeted scale of growth, which organic growth was not likely to deliver.