ADVANCED CORPORATE FINANCE

Q.1(a)
 The major advantage that IBM will get from carving out their PC division is that they
will remove all the unpredictability which comes with the cyclical PC business.
 As PC division of IBM was making them lower margins of profit which can be assumed
as the reason for their selling, IBM will now start earning more earning profits after
divesting it.
 IBM can now invest more in their enterprise and non-computer business through the
earnings gained through selling of their PC division.
 IBM can focus more on providing PC services and servers business.
 Selling PC business to Lenovo will also help IBM to expand their business in Asian
market.

Q.1(b)
 Lenovo’s major motivation was to obtain the largest share of the International PC market
and acquiring the PC division of IBM would bring it closer to achieving their goal.
 Acquiring IBM’s PC division would also help them to expand their territory outside
China.
 Lenovo also entered into the global market by this acquisition.
 Lenovo will also enjoy the credibility of the IBM brand and it will help Lenovo to expand
their business more conveniently.
 As both Lenovo and IBM are competitors in one product which is of PC business, this
type of acquisition can be considered as horizontal acquisition.
 It is also an international acquisition as two foreign companies are involved in this
acquisition.
 The major motivation of every international acquisition is entry in foreign market to
expand their business.