China's personal computer giant Lenovo Group Limited Wednesday signed an agreement with IBM to take over the latter's personal computer business for 1.25 billion US dollars.

According to the agreement, Lenovo will acquire IBM's entire global desktop and laptop computer research and development and manufacturing business. In return, Lenovo will pay IBM 650 million US dollars in cash and grant it 600 million US dollars worth of Lenovo stocks, which will make IBM an owner of around 18.5 percent of Lenovo's equity stake.

After the transaction is completed, Lenovo Holdings will keep around 45 percent equity stake of Lenovo Group Limited, which is listed on the Stock Exchange of Hong Kong and has American Depositary Receipts traded in the United States.

"The purchase will make Lenovo Group the third largest PC maker worldwide with an annual revenue exceeding 10 billion US dollars," Lenovo Chairman Liu Chuanzhi said after signing the agreement along with IBM vice president John Joyce.

After the transaction, the volume of Lenovo's PC business will reach 11.9 million units, based on its 2003 results, a fourfold increase in Lenovo's current PC business. As a result, it will account for 8 percent of the world market share, says an IBM press release carried on its official website.

"Through acquiring IBM's global PC business and forming a strategic alliance with IBM, Lenovo would absorb and integrate the skills from both sides and acquire global brand recognition, an international and diversified customer base, a world-class distribution network with global reach, more diversified product offerings, enhanced operational excellence and leading-edge technology," said Yang Yuanqing, currently Lenovo vice chairman, president and chief executive officer.

He added that the transaction would also help establish Lenovo's international name recognition by leveraging IBM's powerful global brand thorough a five-year brand licensing agreement as well through ownership of the globally-recognized "Think" family of trademarks.

Lenovo's new PC business is expected to benefit from IBM's worldwide distribution and sales network covering 160 countries.

For IBM, the transaction would further consolidate its presence in the world's fastest growing IT market through holding a significant stake in China's largest PC maker.

As part of the transaction, Lenovo and IBM will enter a broad-based, strategic alliance in which IBM will be the preferred services and customer financing provider to Lenovo. Lenovo will be the preferred supplier of PCs to IBM, enabling IBM to offer a full range of personal computing solutions to its enterprise and small and medium business clients.

Stephen M. Ward, Jr., currently IBM senior vice president and general manager of IBM's Personal Systems Group, will serve as the chief executive officer of Lenovo following completion of the transaction, expected in the second quarter of 2005. Yang Yuanqing will take over the Lenovo chairmanship from Lenovo's founding father Liu Chuanzhi.

Lenovo Group will locate its PC business worldwide headquarters in New York, with principal operations in Beijing and Raleigh, North Carolina, and sales offices throughout the world, according to company sources.

After the deal, Lenovo will have some 19,000 employees. About 10,000 current IBM PC division employees, more than 40 percent of whom already are in China and less than 25 percent in the United States, will join Lenovo.

Lenovo commanded a 27 percent share of China's PC market in 2003 and Lenovo PCs ranked the number one in the Asia Pacific (excluding Japan) with a share of 12.6 percent in 2003.