Lenovo said to turn to security insiders for deal approval
Lenovo Group Ltd. has turned to national security insiders to win U.S. approval to buy Google Inc.'s Motorola Mobility phone unit, which is based in Libertyville, and International Business Machines Corp.'s low-end server business, people familiar with the two deals said.
The world's largest personal-computer maker hired attorneys at Steptoe & Johnson LLP who held positions at the Central Intelligence Agency and the Homeland Security Department to guide its Motorola review through a key interagency panel, one of the people said. Covington & Burling LLP partners David Fagan and Mark Plotkin are representing Lenovo in the IBM server deal, according to another person familiar with the matter.
"It's not uncommon for a company that is going to have more regulatory issues in Washington to beef up its lobby presence," said Kenneth Gross, a lawyer at Skadden, Arps, Slate, Meagher & Flom LLP. "It goes with the territory in terms of entering the Washington regulatory scene to beef up your presence here with lobbyists and others."
Lenovo Chief Executive Officer Yang Yuanqing is spending a combined $5 billion to buy Motorola and the server business in a bid to move beyond the shrinking personal-computer industry and become a global technology player. Yang is betting that moving aggressively into North America will help give his company the scale to compete better against Apple Inc. and Samsung Electronics Co. in smartphones and against Dell Inc. and Hewlett-Packard Co. in servers.
Steptoe will guide the Motorola review through the Committee on Foreign Investment in the U.S., or CFIUS, one of the people said. Partners Stewart Baker, a former senior official at Homeland Security, and Stephen Heifetz, who served in the Justice Department, Homeland Security and the CIA, are advising China's Lenovo on its purchase of Motorola Mobility.
Covington's Plotkin represented IBM in the $1.25 billion sale of its personal-computer division to Lenovo. He leads the firm's national security and defense industry group, according to his biography on the law firm's website.
Brion Tingler, a spokesman for Beijing-based Lenovo, declined to comment on the legal advisers for either deal. Steptoe's Baker and Covington's Plotkin declined to comment. Heifetz and Fagan didn't return phone messages seeking comment.
Chinese investors were the subject of more than double the number of CFIUS reviews in 2012 than they were the previous year, overtaking the U.K. as the most scrutinized foreign buyers of American assets, the panel said in its annual report to Congress.
Twenty-three proposed Chinese acquisitions of U.S. assets were reviewed in 2012 by the panel, an interagency committee led by the Treasury Department. It reviews potential national security effects of transactions in which a foreign investor obtains control of U.S. companies.
Heifetz, a representative to CFIUS when he was at the Homeland Security Department, wrote in a Bloomberg View column last year CFIUS is "far too weak a tool to address concerns about Chinese spying" because its authority is limited to transactions that result in foreign control of U.S. companies and doesn't extend to sales of equipment or services, or the development of new businesses.
"Without continuing and visible approvals of Chinese investments, this may damage the health of U.S.-China relations, which are critical to a more stable and prosperous 21st century," he wrote.
Lenovo's effort to win approval for the two deals will benefit from the fact that it previously went through a CFIUS review with its purchase of IBM's personal-computer business, said Stephen Paul Mahinka, a lawyer at Morgan, Lewis & Bockius LLP. That review means CFIUS staff is familiar with the company's operations and its track record after buying the IBM business, said Mahinka, who isn't involved in the deals.
Mahinka said companies that may encounter opposition should consider meeting with agencies that will participate in the CFIUS review as well as representatives of states where the assets they're acquiring are located.
"You are well advised to consider going to places to try to pave the way for you," he said. "It's a security review, but it's a political review because security is a political issue, so you have to concern yourself with all these sorts of potential political pluses, minuses and pressure points."
Ted Kassinger, a partner at O'Melveny & Myers LLP and a former Commerce Department deputy secretary, is representing IBM, according to a person familiar with the matter. Deirdre Murphy Ramsey, an IBM spokeswoman, declined to comment on the company's legal advisers.
"Our transaction with Lenovo is separate from the recently announced Lenovo/Google deal and will be considered by CFIUS on its own merits," Christopher Padilla, IBM's vice president of governmental programs, said in an e-mailed statement.
Cleary Gottlieb Steen & Hamilton LLP confirmed that its partner Paul Marquardt is representing Google's Motorola Mobility.
The experience of Microsoft Corp. taught the high-tech industry how important it is to have a Washington presence. Microsoft began ramping up its lobbying spending only after facing a Justice Department antitrust suit and congressional hearings in the 1990s. In 2013, Microsoft spent $10.5 million on lobbying, its highest total ever, according to the Center for Responsive Politics, a Washington-based research group.
Lenovo spent $140,000 on lobbying last year, all to hire the firm Grayling, according to the center.
Among its lobbyists are four former congressional aides, one of whom, Bill Simmons, raised $1.3 million for the presidential campaign of Republican nominee Mitt Romney.
Google spent $15.8 million last year on lobbying, fifth- most among corporations, according to the center. IBM spent $6 million.
James Lewis, a senior fellow at the Center for Strategic and International Studies in Washington, said he didn't expect the same reaction to Lenovo that met efforts by two other Chinese companies, ZTE Corp. and Huawei Technologies Co., to expand their footprint in the U.S. telecommunications market.
Huawei in 2011 unwound the purchase of patents from a computer-services company, 3Leaf Systems Inc., after U.S. objections. A 2012 report prepared by the U.S. House intelligence committee said Huawei and competitor ZTE provide opportunities for Chinese intelligence services to tamper with U.S. telecommunications networks for spying.
Lenovo's purchase of IBM's PC business has already been vetted by U.S. officials, and the company was cooperative and open during that investigation, Lewis said. In addition, they're buying low-end, consumer-oriented businesses.
"If you had to pick a Chinese company that wasn't going to run into trouble, it would be them," Lewis said. "This is a pretty vanilla deal, as opposed to the backbone telecom products, which have always been considered a strategic industry. No one considers servers or handsets strategic."