Beijing-based computer manufacturer Lenovo Group Ltd. actively considered a bid for BlackBerry Ltd., but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.
Ottawa made it clear in high-level discussions with BlackBerry that it would not approve a Chinese company buying a company deeply tied into Canada’s telecom infrastructure, sources said. The government made its position known over the last one to two months. Because Ottawa made it clear such a transaction would not fly, it never formally received a proposal from BlackBerry that envisioned Lenovo acquiring a stake, sources said.
The Waterloo, Ont.-based company announced Monday it abandoned plans to sell itself and instead agreed to a $1-billion (U.S.) financing with a group led by Fairfax Financial Holdings Ltd.
BlackBerry operates a secure network that handles hundreds of millions of encrypted messages each day and its customers include many government agencies, businesses and Fortune 500 companies. BlackBerry said earlier this year that more than 30 petabytes of data traffic passes through its infrastructure each month.
Lenovo has more than 33,000 employees, operates in more than 60 countries and has a major smartphone business. Most of its shares are widely held, but about 32 per cent of the comany is owned by Legend Holdings Ltd., a Chinese investment company.
The rejection of Lenovo is the latest manifestation of the federal government’s heightened concern about allowing foreign companies to own vital electronic infrastructure.
Last month, Ottawa rejected an Egyptian billionaire’s bid to buy a division of Manitoba Telecom Services because of unspecified national security concerns about that $520-million deal. When he announced the decision, Industry Minister James Moore cited MTS Allstream’s national fibre-optic network that provides critical telecommunications services to businesses and governments, including the Canadian government.
A Canadian government official, speaking on condition of anonymity, cautioned against reading an anti-Chinese policy into the BlackBerry case. “I don’t think anybody should be surprised that we would have concerns like that,” the official said.
“We have been pretty consistent that the message is Canada is open to foreign investment and investment from China in particular but not at the cost of compromising national security.”
Sources said Lenovo was very interested and would likely have been willing to buy BlackBerry. But the Canadian firm could ill afford to spend months tied up with a security review that could potentially derail a transaction.
One of BlackBerry’s key concerns in looking for a buyer was speed and certainty. Any transaction with significant risk of falling through was a problem because BlackBerry might not have had time to execute a Plan B with the way its business has been declining.
Nearly a year ago, in late 2012, the federal government erected new barriers to investment by state-owned companies, fencing off the Canadian oil sands from further control by foreign governments – a decision government officials later explained was aimed at China.
But on Monday the Canadian official took pains to emphasize that concerns about BlackBerry are not part of a trend to shut out Chinese investment. “This is a company that has built its reputation and built its success on system security and its infrastructure. That’s one of the reasons businesses use BlackBerries. … The security is robust and we’d obviously have an interest in making sure we didn’t do anything or allow anything that would compromise Last fall, citing a rarely used national-security protocol, Ottawa has sent a signal to Chinese telecom equipment giant Huawei Technologies that it would block the firm from bidding to build the Canadian government’s latest telecommunications and e-mail network. Huawei, founded by a former People’s Liberation Army member, has on numerous occasions found itself having to reject claims its equipment could be used to enable spying.
In October. 2012, a senior spokesman for Prime Minister Stephen Harper publicly hinted Huawei would be left out the cold. “I’ll leave it to you if you think that Huawei should be a part of [the] Canadian government security system,” Mr. MacDougall said.
The Chinese telecom equipment maker later said it had no intention of bidding for contracts to rebuild the Canadian government’s sensitive phone, computer and e-mail networks.