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Lenovo buys CCE to bank on Brazil in bid for profit growth

: 0 Comment(s)Print E-mail Agencies via Shanghai Daily, September 7, 2012

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A Lenovo computer store in Nanjing, Jiangsu province. China's Lenovo Group Ltd has agreed to buy Brazilian electronics maker CCE. [Photo/China Daily]

China's Lenovo Group Ltd has agreed to buy Brazilian electronics maker CCE, as the world's No. 2 PC maker by sales bets that Brazil's promising consumer market can help revive its slowing profit growth.

The deal, announced in a stock exchange filing late on Wednesday, is valued at a base price of 300 million reais (US$148 million), subject to adjustments. Payment, in a mix of stock and cash, could include an additional 400 million reais, depending on performance-based indicators over the four years ending in December 2016.

"Brazil has a positive growth rate (for PCs) even in the current relatively volatile environment," Lenovo Chief Financial Officer Waiming Wong said. "If we really go for the high growth market, the big market, Brazil is obviously the candidate."

Lenovo's purchase of CCE, Brazil's largest domestic maker of electronics such as PCs, DVD players and stereos, will allow the Chinese company to nearly double its share of the PC market in the world's sixth-largest economy.

The deal will also add mobile phones and televisions to Lenovo's product line in Brazil, where it recently announced plans to build a US$30 million factory, helping it expand beyond its current focus on the corporate sector.

"In order to win in Brazil long term you have to have local manufacturing," Wong said, adding the acquisition would boost Lenovo into third place in Brazil's PC market from seventh place now. "When CCE came along, it definitely was a good fit."

The acquisition, which Lenovo expects to close in the first quarter of 2013, also comes at a time when Brazil's once-booming economy has lost steam.

"We aren't worried about that," Wong said. "We believe that Brazil has a bright future as one of the major emerging market economies. The relative slowdown in the economy has already been reflected in the valuation (of the deal)."

By expanding its operation in Brazil, Lenovo follows other Chinese electronics makers such as Foxconn, which makes products such as notebooks and tablets in a local factory and plans to further expand production into liquid crystal displays.

Lenovo plans to invest US$100 million in research and development in Brazil over the next five years, Dan Stone, head of the company's Brazil unit, said on Wednesday.

China is still Lenovo's main sales driver, contributing around 42 percent of its total revenue, though slowing growth has sapped demand. In response, Lenovo has aggressively expanded into other regions, primarily through overseas acquisitions.

Lenovo values the Brazilian market for PCs, smartphones, tablets and SmartTVs at US$124 billion.

"In recent years, we have established a No.1 postition in emerging markets, and we hope to do the same in Brazil," Lenovo said in a statement, adding that CCE's management team would be maintained.