Report: IBM-Lenovo x86 Server Acquisition Talks Break Down

On Wednesday, Fortune reported that talks between IBM and Lenovo have broken down over "valuation concerns," but said it's possible the two companies could resume negotiations.

A Lenovo spokesperson declined to comment on the report. IBM couldn't be reached for comment.

[Related: Lenovo Partners Buzzing About Possible IBM x86 Server Buy ]

As CRN first reported last month, IBM is reportedly seeking $5 billion to $6 billion for its x86 server business. The deal includes IBM's low-end System x rack mount and tower systems, but not the PureFlex and BladeCenter servers, sources said.

Lenovo confirmed last month that it was in preliminary negotiations to buy a third-party server business but didn't identify the vendor.

Last week, a source tracking the deal told CRN the IBM-Lenovo server talks were "moving quickly" and that a definitive agreement was close to being hammered out.

IBM has walked from big deals before over valuation concerns. In 2009, IBM withdrew its $7 billion bid to acquire Sun Microsystems after several weeks of negotiations.

Lenovo bought IBM's PC business in 2005 for $1.25 billion. As part of the deal, IBM took an 18.9 percent stake in Lenovo and became its primary services and customer financing provider, while Lenovo became the preferred supplier of PCs to IBM.

In 2008, the vendors signed an agreement that allowed Lenovo to build one- and two-processor servers based on IBM System x server technology. Lenovo had been selling its own x86 servers in China prior to the IBM partnership.

If IBM and Lenovo forge an agreement on an x86 server acquisition, they could face additional hurdles from the Committee on Foreign Investment in the United States (CFIUS), a group of government agencies that studies mergers and acquisitions involving non-U.S. firms.

CFIUS raised security concerns in 2005 when IBM and Lenovo first announced their PC deal. Given the rise in state-sponsored attacks emanating from China since then, CFIUS would likely give a server deal between the companies even closer scrutiny.

PUBLISHED MAY 1, 2013