Lenovo will buy the German electronics firm Medion

CHINESE COMPUTER MAKER Lenovo plans to buy the European multimedia and communications company Median in an effort to expand into Western Europe.

The agreement will see Lenovo's market share in Germany double and make it the third largest PC company in the country, with a share of 7.5 per cent in Western Europe as a whole.

As part of the deal, Lenovo will make a public offer for Medion's shares, paying €13 in cash per share. This is a 29 per cent premium over the average closing price for Medion shares during the last month and a 27 per cent increase over the last three months, so it's not surprising that Medion signed on the dotted line.

Medion's founder and CEO, Gerd Brachmann is selling some of his own shares under a separate agreement with Lenovo. He owns 40 per cent of the company and is parting with his shares for €13 each. However, his deal involves an 80 per cent cash payment and a 20 per cent payment in Lenovo shares.

The deal will require the sale of 15 per cent or more of Medion's shares, in addition to those being sold by Brachmann, or Lenovo won't have a majority stake. It's unlikely that this will happen, however, given the premium price that Lenovo is offering.

Both companies said that once the deal goes through they expect to continue operations as normal, so Medion's 1,000 jobs should be relatively safe. In the short term Lenovo and Medion will keep their own brands. However, they mentioned collaboration and cost savings, so some restructuring can be expected in the medium to long term.

Medion was established in Germany in 1982. It has markets in Europe, the United States and Asia. Many of its products sell in Aldi stores throughout Europe, giving Lenovo a much larger market to work with.

The boards of directors of both companies have approved the transaction and Barclays Capital is acting as financial advisor. The acquisition is expected to complete in the third quarter. µ